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University  of  California. 

FROM    THK    I.Iim/\Ry   OF 

DR.    FRANCIS     LIEBER, 
Profes5or  of  History  and  Law  in  Columbia  College,  New  Y(Ar^;. 


THR  GIFT   OK 


MICHAEL    REESE 

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Digitized  by  the  Internet  Archive 

in  2007  with  funding  from 

IVIicrosoft  Corporation 


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ELEMENTS 


POLITICAL  ECONOMY. 


ARTHUR  LATHAM  PERRY, 

OF  HISTORY  AND  POLITICAL  ECONOMY  IN  WILLIAMS 
COLLEGE. 


NEW   YORK: 
CHARLES  SCRIBNER  AND   COMPANY. 

124  Grand  Street. 
1866. 


\\i!^ 


£^^ 


'^ 


Entered  according  to  Act  of  Congress,  in  the  year  1865,  by 
Arthur  L.  Perry, 
the  Clerk's  Office  of  the  District  Court  of  the  United  States  for  the  District 
of  Massachusetts. 


RIVERSIDE,  CAMBRIDGE: 

STEREOTYPED    AND    PRINTED    BY 

H.   0.  HOUGHTON   AND   COMPANY. 


To 

MY  FRIEND  AND  COLLEAGUE, 

PROFESSOR  JOHN  BASCOM, 

18   CORDIALLY  INSCRIBED. 


TABLE   OF   CONTENTS. 


■4- 


CHAPTER  I. 

PAOS 

On  the  History  of  the  Science 1 


CHAPTER  II. 
On  the  Field  of  the  Science 23 

CHAPTER  III. 
On  Value .33 

CHAPTER  IV. 
On  Exchange 74 

•      CHAPTER  V. 
On  Production 89 

CHAPTER  VI. 
On  Labor 103 

CHAPTER  VII. 
On  Capital 188 


Vi  CONTENTS. 

CHAPTER  VIII. 

PAflS 

On  Land 149 

CHAPTER  IX. 
On  Cost  op  Production 166 

CHAPTER  X. 
On  Monet 188 

CHAPTER  XI. 
On  Cureenct  in  the  United  States 277 

CHAPTER  Xn. 
On  Credit  . 314 

CHAPTER  XIII. 
On  Foreign  Trade 347 

CHAPTER  XIV. 
On  the  Mercantile  System 410 

CHAPTER  XV. 
On  American  Tariffs 422 

CHAPTER  XVI. 
On  Taxation 488 


ANALYSIS   OF   CHAPTEES. 


CHAPTER  I. 

ON   THE   HISTORY   OF   THE   SCIENCE. 

PA6B 

A.  Definition  of  the  science,     ......  1 

B.  Its  Basis  and  mode  of  Development,        ....  1 

C.  Its  History, 2 

a.   Oriental  traffic.    Abraham 2 

&.   Greek  opinion.     Xenophon,  Plato,  Aristotle.           .  3 

c.  Roman  opinion.     Cicero,  Cato.            ....  5 

d.  Middle-age  opinion.     The  monks  and  universities,  .  7 

e.  The  Bullion  Theory,  and  the  policy  that  sprung  from  it,  8 
/.  The  Mercantile  System,  and  its  devices,  .  .  .11 
g.   Recoil  from  the  Mercantile  System  towards  freedom,  15 

(1)  English  contributions.    North,  Hume,  Smith,  Ri- 

cardo,  Mill 17 

(2)  French  contributions.     Quesnay,  Say,  Bastiat.  19 

(3)  Italian  and  German  writers,    ....  21 

(4)  American  contributions.     Rae,  Carey.,        .         .  21 

CHAPTER  H. 

ON    THE   FIELD    OF    THE    SCIENCE. 

A.  Political  Economy  distinct  from  Moral  Science,   .        .  23 

B.  It  is  a  political,  that  is,  a  social  science,  .  .  .  .25 
a.  Without  society  no  exchange,  .  .  .  .  26 
6.   Without  exchange  no  value, 26 

c.  Without  value  no  science  of  value,          ...  26 

d.  Man  in  isolation  weak,  in  society  strong,     .         .         .27 

C.  Some  leading  definitions  of  the  science,       ...  28 


viii  ANALYSIS  OF  CHAPTERS. 

PAOl 

D.  The  word  wealth  useless  as  a  scientific  term,  .  .  .29 
a.   First  reason  of  the  slow  progress  of  the  science,      .  29 

E.  Archbishop  Whately's  definition, 31 

a.   Second  reason  of  slow  progress,      .        .        .        .  31 

CHAPTER  m. 

ON  VALUE. 

A.  Value  not  an  independent  quality  of  anything,         .         .35 

B.  But  a  relation  of  mutual  purchase  between  two  things,  35 

C.  Origin  of  Value  in  an  exchange  of  efforts,       .         .         .37 

D.  Desires,  efforts,  satisfactions,  the  circle  of  Political  Econ- 

omy,         .........  37 

E.  The  simplest  case  of  Value  includes  all  others,         .         .  40 

F.  No  essential  difference  between  services  and  commodities,  41 

G.  This  definition  of  Value  final,  with  manifold  advantages,  42 
a.  It  covers  completely  hitherto  anomalous  cases  of  value,  45 
6.   Remarkable  aptness  of  the  word  Service  for  a  scientific 

use, 45 

c.  Ultimate  analysis  of  the  phenomenon  of  Value,          .  47 

d.  The  definition  expands  Political  Economy  to  its  just 

limits,           ........  48 

e.  Frees  the  discussion  from  previous  perplexities,  .         .  50 

(1)  From  the  notion  that  value  consists  in  matter,  51 

(2)  From  some  obstinate  Illusions  of  language,       .  54 

(3)  From  a  mischievous  confusion  of  utility  with  value,  55 
H.  Value  a  different  thing  from  Price,       .         .         .         .  59 

I.    No  perfect  measure  of  value  attainable,  .         .         .         .63 

J.    Limitations  of  value  in  the  two  elements  of  efforts,      .  64 
K.    Limitations  in  the  two  elements  of  desires,       .         .         .66 

L.  Equation  of  Supply  and  Demand,        .         .         .         ,  68 

M.  Every  rise  or  fall  of  demand  tends  to  check  itself,    .         .  70 

a.   Through  a  consequent  rise  or  fall  of  value,      .         .  70 

&.    Through  action  on  supply, 71 

N.   Three  classes  of  services  In  the  law  of  their  value,       .  71 
a.  Those  which  can  be  increased  without  increased  diffi- 
culty,            73 

6.   Those  increased  only  through  increased  difficulty,       .  72 

c.   Those  which  cannot  be  increased  at  all,  ...  72 


ANALYSIS  OF  CHAPTERS.  IX 

CHAPTER  IV. 

ON  EXCHANGE. 

FAOB 

A.  Principles  of  human  nature  involved  in  exchange,        .  74 

B.  Society  a  hive  of  buyers  and  sellers,        .         .         .         .75 

C.  God's  will  as  indicated  in  diversity  of  natural  gifts,       .  76 

D.  Association  and  Individuality, 77 

E.  Interest  the  sole  motor  in  exchange,     ....  77 

F.  All  exchange  depends  on  diversity  of  relative  advantage,  80 

G.  The  greater  the  difference  of  relative  advantage  the  more 

profitable  do  exchanges  become,       ....         80 
H.  Freedom,  association,  and  invention,  essential  to  just  di- 
versity,      80 

I.    The  right  to  free  exchange  a  natural  right,      .         .         .81 
J.   Governments  formerly  unwarrantably  interfered  with  this 

right, 81 

K.  But  latterly  have  mostly  conceded  it  within  home  bound- 
aries,         83 

L.    Opposed  to  free  exchange  are  Monopolies,       .        .         .84 
a.   Arbitrary  prohibitions  on  the  sale  of  home  services,         85 
l.   Arbitrary  prohibitory  duties  on  the  admission  of  for- 
eign services, 85 

c.   Patents  and  copyrights  are  unobjectionable  monop- 
olies,     87 

#  CHAPTER  V. 

ON  PRODUCTION. 

Al.   Definition  of  Production  and  Producers,     ...  89 

B.  The  beneficent  law  of  production  this,  that  Nature  works 

gratuitously  in  the  service  of  man,    .         .         .         .  90 

C.  The  effect  on  values  of  Nature's  help  in  production,  .  93 

D.  A  general  glut  of  products  impossible,    ....  95 

E.  Advantages  of  the  Division  of  Labor,         ...  98 
a.   Improved  corporeal  and  intellectual  dexterity,           .  99 

/        &.    The  saving  of  time, 99 

c.  The  invention  of  machinery, 99 

d.  The  more  economical  distribution  of  labor,   .        .         100 


ANALYSIS  OF  CHAPTERS. 


G. 


A. 
B. 


C. 
D. 

E. 
F. 


e.   A  less  waste  of  material,  . 

/.   A  saving  in  tools,  .         .         .         . 

Disadvantages  of  the  Division  of  Labor, 

a.   Monotonous  work  becomes  irksome, 

h.   A  tendency  to  dwarf  the  powers, 

c.    An  undue  dependence  of  the  workmen. 

Limitations  to  the  Division  of  Labor,     . 

a.   From  the  extent  of  the  market,    . 

h.   From  the  nature  of  the  employment, 

CHAPTER  VL 


PAGB 

100 
100 
100 
101 
101 
101 
101 
101 
102 


ON   LABOR. 

Physical  labor  consists  in  moving  things,     .         .         .         104 
Men  have  sought  and  found  helps  in  this,       .         .         .104 

a.  The  domestic  animals, 104 

b.  The  water-wheel  and  wind-mill,        .        .         .        .105 

c.  Steam, 105 

To  apply  these  capital  is  needed, 106 

The  three  requisites  of  material  production.  Labor,  Power- 
agents,  Capital, 106 

The  definition  of  Labor, 106 

The  remuneration  of  Labor,       .         .         .         .         .         107 
a.   The  wages  of  skilled  labor  depend  : 

(1)    On  the  general  action  of  supply  and  demand,        108 
h.   Are  higher  than  the  wages  of  common  labor,  .         .108 

(1)  From  the  scarcity  of  appropriate  original  gifii,        109 

(2)  From  the  lack  of  the  requisite  industry,         .         109 

(3)  Or  of  the  means  of  suitable  education  and  train- 

ing,         109 

c.   Principles  varying  all  wages,  mainly  through  supply,     110 

(1)  Agreeableness  or  disagreeableness  of  the  employ- 

ments,       .        - 110 

(2)  The  easiness  and  cheapness  of  learning  them,  .     Ill 

(3)  The  constancy  of  employment  in  them,          .  113 

(4)  The  amount  of  trust  involved,  .         .         .  .113 

(5)  The  probability  of  success,  .  .  .  .  115 
(G)  Custom,  prejudice,  and  fashion,  .  .  .  116 
(7)  Legal  restrictions  and  voluntary  associations,  117 


ANALYSIS   OF  CHAPTERS.  XI 

PAQB 

d.  Principles  determining  wages  through  demand,         .  119 

(1)  The  presence  of  capital  is  a  demand  for  labor,  119 

(2)  The  more  of  capital  the  stronger  the  demand,  119 

(3)  Capital  a  dividend,  number  of  laborers  a  divisor, 

and  the  quotient  will  express  in  general  the 

rate  of  wages,    .         .         .         .         .         •  121 

e.  Popular  remedies  for  low  wages  ineffectual,       .         .122 

(1)  Government  can  not  directly  raise  them,        •  123 

(2)  But  may  indirectly  act  beneficially  upon  them,  124 

(3)  Public  opinion  may  act  usefully  in  some  direc- 

tions,            125 

(4)  No  legal  restraints  on  population  needful,          .  126 

(5)  Strikes   are  false  in   theory  and  pernicious  in 

practice, 128 

CHAPTER  Vn. 

ON   CAPITAL. 

A.  Definition  of  Capital, 133 

B.  How  capital  arises,         .         .         .         .         .         .         .135 

C.  The  remuneration  of  Capital,  or  Profits,  .  .  .  137 
a.  Profits  are  the  reward  of  abstinence,  .  .  .  138 
i.   And  are  just  as  legitimate  as  wages,       .         *         .  139 

D.  The  law  of  distribution  between  Capital  and  Labor,  .  141 
a.  Labor  is  directly  interested  in  the  success  of  capital,  143 
h.  Capital  equally  interested  in  the  prosperity  of  laborers,  143 
c.   Increase  of  capital  redounds  more  to  the  benefit  of 

laborers  as  a  class  than  to  capitalists  as  a  class,      .  144 

E.  Capital  is  either  circulating  or  fixed,           .        .        .  146 

CHAPTER  Vin. 

ON   LAND. 

A.  The  value  of  Land  and  the  rent  of  Land  not  anomalous,  150 

B.  The  whole  earth  given  to  men  gratuitously  of  God,  .  150 
a.   Till  labor  has  been  bestowed  on  them,  or  in  reference 

to  them,  lands  are  valueless,      .         .         .         .  153 
6.   What  is  sold  in  land  is  not  the  inherent  qualities  of 

the  soil,  but  the  improvements  of  man,  .         .153 


XU  ANALYSIS  OF  CHAPTERS. 

PAGB 

c.  God's  gifts  to  the  race  not  interceptible  by  one  gen- 

eration,      153 

d.  History  here  confirms  the  deductions  of  reason,         .     153 

C.  Lands  are  subject  to  the  law  of  diminishing  return,    .         155 

a.  Through  this  law  the  whole  earth  has  been  gradually 

occupied, 156 

b.  Mr.  Carey  fails  to  break  down  this  law,     .         .         .157 

D.  Diminishing  returns  retarded  by  improvements  in  agri- 

culture,       158 

E.  Rent  of  land  the  measure  of  the  service  rendered  by  the 

owner, 158 

a.  Ricardo's  theory  too  mechanical  and  rigid,        .         .159 

b.  Rent  partakes  of  the  nature  of  both  wages  and  profits,    160 

F.  Approximately  equal  division  of  lands,  and  the  tenure  in 

fee  simple,  the  best  for  production,  .         .         .         161 

a.  Beneficial  operation  of  the  fee  simple,       .         .         .162 

b.  Free  trade  in  lands,  and  the  consequent  natural 

division  best, 162 

(1)  Because  efficient  motives  are  brought  to  bear 

more  universally, 163 

(2)  Because  there  is  more  of  personal  supervision,       163 

(3)  Because  the  masses  are  thereby  educated  and 

energized, 163 

(4)  Because  it  contributes  to  the  national  strength,       163 

(5)  Illustrations  from  England  and  France,     .         .164 


CHAPTER  IX. 

ON   COST   OF   PRODUCTION. 

A.  Foresight  an  important  matter  in  the  sphere  of  ex- 

change,        167 

B.  Cost  of  production  one  element  from  which  value  springs,     167 

C.  Cost  of  production  made  up  of  cost  of  labor  and  cost  of 

capital, 170 

a.    Cost  of  labor  is  made  up  of  three  things : 

(1)  Efficiency  of  the  labor,  .         .         .         .         170 

(2)  The  nominal  rate  of  wages,        .         .         .         .170 

(3)  The  cost  of  that  in  which  labor  is  paid,  .         170 


ANALYSIS  OF  CHAPTERS.  XIU 


b.  Diversity  of  nominal  wages  does  not  prove  a  diver- 

sity in  the  cost  of  labor, 171 

c.  The  terms  high  and  low  wages  ambiguous,    .         .  1 73 

(1)  Meaning  sometimes  money  wages,      .         .         .173 

(2)  Sometimes  real  wages, 173 

(3)  Sometimes  relative  wages,  .         .         .         .173 

d.  Profits  the  Zeavi/2^s  of  cost  of  labor,       .         .         .  175 

e.  Cost  of  capital  analyzable  into  three  variables,          .  176 

(1)  The  rate  per  cent., 176 

(2)  The  time  for  which  the  capital  is  advanced,        .  176 
(8)    The  slow  or  rapid  deterioration  of  that  form  of 

capital, 176 

D.  An  enhanced  cost  of  labor  will  exhibit  itself  in  lower 

profits, 179 

E.  A  general  and  uniform  rise  or  fall  of  wages  will  not 

affect  value, 179 

F.  A  partial  or  unequal  rise  or  fall  will  affect  it,  .         .179 

G.  The  same,  mutatis  mutandis,  is  true  of  profits,    .         .  180 
H.   The  amount  and  durability  of  machinery  an  important 

element  in  cost  of  production,         .         .         .         .  180 

I.    Machinery  is  not  injurious  to  the  wages  of  labor,   .         .  184 

a.  Because  labor  is  required  to  make,  repair,  and  work  it,  184 

b.  Because  it  makes  a  broader  market,  and  hence  a 

stronger  demand  for  products,   .         .         .         .  185 

c.  Because  it  cheapens  products  used  by  the  laborers,  :|85 
J.    Manufactured  articles  tend  to  decline  in  value  as  com- 
pared with  food  and  raw  materials,     .         .         .         .185 

CHAPTER  X. 

ON   MONEY. 

A.  Money  was  devised  by  men,  and  hence  comprehensible  by 

them, 188 

B.  Barter  is  inconvenient,  and  sometimes  impossible,           .  189 

C.  Money  is  a  generalized  purchasing-power,           .         .  192 

D.  It  is  a  medium  of  exchange, 193 

a.  It  is  a  small  relative  part  of  the  values  of  any  coun- 
try,      194 


XIV  ANALYSIS  OF  CHAPTERS. 


PAQB 


h.  Its  first  function  is  to  help  exchange  those  values,      .  195 

c.  It  stimulates  to  exchanges  which  would  not  otherwise 

be  made, 197 

d.  It  is  a  generalized  form  of  capital,    .        .        .        .197 

e.  The  amount  needed  determined  by  its  nature  as  a 

medium, 198 

f.   Rapidity  of  circulation  important  in  this  connection,  200 

E.  Money  is  a  measure  of  value, 201 

a.  Importance  of  some  units  of  measure  in  this  field,  202 

b.  Difference  between  a  medium  and  a  measure,       .  203 

c.  Other  tables  of  denominations  fixed  and  absolute,     .  204 

d.  Money  denominations  variable,      ....  206 

e.  A  measure  should  be  as  little  as  possible  liable  to 

fluctuation, 208 

F.  Gold  and  silver  constitute  the  best  money,          .        .  209 

a.  On  account  of  their  comparatively  steady  value,       .  210 

b.  The  reasons  why  their  value  is  so  steady,       .         .  212 

(1)  On  account  of  a  comparatively  steady  demand,  212 

(2)  On  account  of  a  tolerably  uniform  cost  of  pro- 

duction,        213 

(3)  On  account  of  their  quantity,    .         .         .         .214 

(4)  On  account  of  their  fluency,          .         .         .  216 

(5)  Because  every  rise  or  fall  of  their  value  tends  to 

check  itself, 219 

(6)  Because  a  temporarily  increased  demand  is  neatly 

met  by  increased  rapidity  of  circulation,      .  220 

c.  They  are  the  best  money,  secondly,  because  they  are 

self-regulating, 221 

(1)  Difficulty  in  a  double  standard,      .        .        .  223 

(2)  Possibility  of  a  universal  coinage,      .         .         .227 

d.  Thirdly,   because    they  are  conveniently  portable, 

divisible,  and  impressible, 233 

G.  An  inferior  money  drives  a  superior  out,         .         .        .  235 

a.  Dutch  illustration, 237 

b.  English  illustration, 231; 

c.  American  illustrations, 242 

H.  A  paper  money  is  only  tolerable  when  instantly  con- 
vertible,            246 

a.   A  paper  money  is  credit  money,        .        .        »        .247 


ANALYSIS  OF  CHAPTERS.  XV 

PAGB 

b.  It  cannot  in  its  very  nature  well  perform  the  func- 

tions of  money,          .         .         .         .         .         .  249 

c.  The  French  assignats, 251 

d.  American  bills  of  credit, 254 

e.  The  legal-tender  notes, 255 

/.  The  State-bank  currency, 257 

g.  The  currency  of  the  new  national  banks,  .         .259 

h.  The  currency  of  the  Bank  of  England,         .         .  261 

I.   Gold  and  silver  are  an  economical  money,      .        .        .     265 
J.  Interest  on  money  is  legitimate,  and  its  rate  should  be 

free, 266 

a.  Usury  laws  are  anomalous, 266 

b.  They  are  always  disobeyed, 272 

c.  It  would  be  worse  if  they  were  obeyed,    .        .        .273 


CHAPTER  XI. 

ON  CURRENCY  IN  THE  UNITED  STATES.  ^ 

A.  The  colonial  currency, 278 

B.  The  continental  currency, 280 

C.  The  Bank  of  North  America, 284 

D.  The  first  Bank  of  the  United  States,     .        .        .        .289 

E.  The  second  Bank  of  the  United  States,      .        .        .  292 

F.  The  State  banks, 295 

G.  The  coins, .  296 

H.  The  national  banking  system  of  1863,    ....  307 

CHAPTER   XII. 

ON   CREDIT. 

A.   Credit  is  an  exchange  in  which  the  return  service  is 

delayed, 314 

^,   The  forms  of  credit  are  various, 315 

a.  Book-accounts, 315 

b.  Promissory-notes, 316 

(1)  Those  of  individuals  and  corporations,            .  317 

(2)  Those  of  governments, 318 


XVI  ANALYSIS  OF  CHAPTERS. 

PAGE 

c.  Bills  of  exchange, 319 

(1)  The  par  of  exchange, 322 

(2)  How  restored  by  natural  laws,       .         .         .  323 

d.  Checks, 325 

(1)    The  clearing-house  system,    ....  326 

C.  The  advantages  of  credit, 326 

a.  In  transferring  capital  from  less  to  more  productive 

hands, 326 

(1)  To  industrious  men  who  have  no  capital,   .        .  329 

(2)  Through  banks,     ....         .         .         .  330 

(3)  Through  savings-banks,              ....  330 

(4)  Through  life  insurance  companies,          .         .  330 
h.   In  economizing  the  general  operations  of  exchange,  332 

D.  The  disadvantages  of  credit, 388 

a.  "  Long  sales  and  large  profits."    "  Quick  sales  and 

small  profits," 334 

b.  It  tends  to  raise  prices, 834 

E.  The  general  cause  of  commercial  crises,         .         .        .337 

a.   The  crisis  of  1837, 338 

h.   The  crisis  of  1847, 342 

c.  The  crisis  of  1857,          ......  343 

CHAPTER  XHI. 

ON   FOREIGN   TRADE. 

A.  There  are  no  principles  peculiar  to  foreign  trade,       .  347 

B.  But  a  separate  treatment  is  needful,       .        .        .        .847 

C.  All  exchange  depends  on  diversity  of  relative  advan- 

tage,   348 

D.  National  diversities  are  of  God's  ordination,  .         .         .  350 

E.  Relative  cost  of  production  —  arithmetical  illustration,  351 

F.  The  equation  of  international  demand,        .         .         .  359 

G.  The  word  "  compete  "  irrelevant  in  this  connection,       .  360 
H.  Effect  on  trade  of  enhanced  facilities  for  production  in 

either  country, 361 

I.    The  costs  of  carriage, 363 

a.  Each  nation  does  not  necessarily  pay  its  own,        .  364 

b.  That  will  depend  upon  the  new  international  de- 

mand,     364 


ANALYSIS  OF  CHAPTERS.  XVU 


PAGE 

366 


J.  Political  Economy  demands  a  free  commerce,     . 

K.    The  old  Mercantile  System  gave  birth  to  restrictions,     .  366 

L.    Objections  to  free  trade  answered,      .        .        .        .  373 

a.  A  revenue  tariff  not  opposed  to  free  trade,         .        .373 

b.  A  theory? 378 

c.  Does  it  diminish  wages  ? ^75 

d.  Why  so  many  men  believe  in  restriction,        .         .  3  79 

e.  Would  manufactures  suffer  from  freedom  ?         .         .381 

f.  Would  the  country  become  purely  agricultural  ?    .  384 

g.  Is  there  any  ftmdamental  difference  between  com- 

merce and  trade  ? 388 

h.   Mr.  Bigelow's  views, 392 

i.   Every  nation  ought  to  be  independent,           .         .  402 

M.  The  voice  of  experience  on  free  trade,           .        .        .  404 

a.   The  English  example, 405 

h.   The  German  example, 407 

CHAPTER  XIV. 

ON   THE   MERCANTILE/  SYSTEM. 

A.  Fundamental  principles  of  the  Mercantile  System,     .  410 

B.  The  national  policy  that  sprung  from  it,  .         .         .411 

a.  Its  first  device,  prohibitions, 414 

b.  Its  second  device,  restrictions  for  protection,      .         .417 

c.  Its  third  device,  bounties, 420 

d.  Its  fourth  device,  colonies, 421 

CHAPTER  XV. 

ON  AMERICAN   TARIFFS. 

A.  England's  policy  towards  the  American  Colonies,       .  422 

a.  The  "Navigation  Act," 423 

b.  Prohibitions  on  manufactures,         ....  425 

c.  Considerations  condemning  the  colonial  policy,          .  427 

B.  Want  of  power  to  regulate  commerce  under  the  Con- 

federation,       428 

C.  The  Tariffs  under  the  Constitution,        •         .         .         .429 
a.   The  "Hamilton  Tariff"  of  1789,  .         .         ..       .  429 

(1)    Its  low  duties, 429 

b 


XVlll  ANALYSIS  OF  CHAPTERS. 


PAGE 


(2)  Its  steady  revenue,         .        •    ,     •        •        •  430 

(3)  Its  principles  of  tonnage  and  protection,   .         .  431 
6.    The  "  Calhoun  Tariff"  of  1816,  ....  431 

(1)  Unfortunate  connection  of  tariffs  with  politics,  432 

(2)  The  restrictive  system  fairly  entered  upon,     .  432 
c.    The  "  Clay  Tariff"  of  1824, 432 

(1)  Higher  duties, 433 

(2)  Protected  interests  not  satisfied,         .         .         .  433 
d   The  "Tariff  of  abominations"  of  1828,        .         .  433 

(1)  Protection  had  become  unpopular,     .         .         .  433 

(2)  Daniel  Webster  first  votes  for  protection,       .  433 
e.    The  «  Compromise  Tariff"  of  1833,         •         .         .434 

(1)  Presidential  canvass  hostile  to  protection,        .  434 

(2)  The  sliding  scale  of  lower  duties,       .         .         .  434 
/.   The  "  Whig  Tariff"  of  1842,        ....  434 

(1)  Average  of  duties  about  fifty  per  cent.,     .         .  434 

(2)  Factitious  character  of  the  industry  stimulated,  434 
g.   The  "  Walker  Tariff"  of  1846,    ....  435 

(1)  Low  duties,  but  discrimination,           .         .         .  435 

(2)  Increase  of  revenue, 435 

Ji.    The  "Tariff  of  1857," 435 

(1)  Lower  duties,  and  increase  of  free  list,           .  435 

(2)  Falling  off,  and  rallying  of  revenue,          .         .  435 
i.   The  "Morrill  Tariff"  of  1861,     ....  436 

(1)  Duties  too  high  and  complicated,       .         .         .  436 

(2)  Free  list  too  large,  and  not  honestly  framed,  .  436 

(3)  Revenue  too  small, 437 

(4)  It  can  not  be  permanent,        .         .         .        .  437 

CHAPTER  XVL 

ON    TAXATION. 

A.  Taxation  legitimate  on  principles  of  exchange,  .         .  438 

B.  The  Right  of  Property  is  the  power  to  render  services,  438 

C.  Taxes,  then,  fall  properly  on  exchanges,    .         .         .  439 

D.  And  should  be  proportionate  to  them,     .         .         .         .441 

E.  Taxes  are  either  direct  or  indirect,  ....  443 
a.  Direct  taxes  fall  on  income  or  expenditure,  .  .  444 
6.   Indirect  on  imports  or  services  in  transition,           .  444 


ANALYSIS   OF  CHAPTERS.  XIX 


PAQB 


c.  An  income  tax  unexceptionable  in  principle,     .         .  444 

d.  Taxes  on  expenditures,  special,  and  hence  objection- 

able,             445 

e.  A  house-tax,  however,  less  so, 445 

/    General  advantages  and  disadvantages  of  each  form,  446 

F.  Taxes  and  duties,  to  be  productive  should  be  low,       .  446 

G.  Taxes  and  duties  should  be  simple,         .         .         .         .447 
H.  They  should  be  collected  only  just  before  disbursement,  448 

I.   Poorer  citizens  should  be  mostly  or  wholly  exempted 

from  taxes, 449 


ELEMENTS  OF  POUTICAL  ECOXOMT. 


CHAPTER   L 


2  ELESIENTS  OF  POLITICAL  ECONOMY. 

glance  at  the  history  of  the  science,  and  to  trace  the 
steps  by  which  successive  inquirers  have  brought 
Political  Economy  to  its  present  stage  of  develop- 
ment. 

While  labor  is  as  old  as  the  race,  and  exchanges 
are  as  old  as  society,  and  while  doubtless  in  all  ages 
individual  inquirers  have  tasked  their  minds  with 
some  portions  of  the  subject,  Political  Economy  as  a 
science  can  hardly  be  said  to  have  existed  till  within 
a  period  comparatively  recent.  Men  exchanged 
among  themselves  services  and  commodities,  and 
found  their  account  in  exchanging,  long  before  the 
dawn  of  authentic  history.  The  first  commercial 
transaction  on  record  dates  back  about  two  thousand 
years  before  Christ.  It  was  the  purchase  by  Abra- 
ham of  the  cave  and  field  of  Machpelah.  "  And 
Abraham  weighed  to  Ephron  the  silver  which  he  had 
named  in  the  audience  of  the  sons  of  Heth,  four  hun- 
dred shekels  of  silver,  current  money  with  the  mer- 
chant." All  this  implies  at  that  early  day  fixed  con- 
ditions of  trade.  There  were  merchants  as  a  class. 
Silver  by  weight  was  already  a  medium  of  exchange 
passing  from  hand  to  hand.  It  was  current  money 
with  the  merchant.  In  the  absence  of  written  doc- 
uments a  bargain  was  made  in  the  presence  of  living 
witnesses.  It  was  "  in  the  audience  of  the  sons  of 
Heth,  before  all  that  went  in  at  the  gate  of  his  city, 
that  the  field  and  the  cave  were  made  sure  unto 
Abraham  for  a  possession."  An  earlier  passage  in 
the  life  of  Abraham  shows  that  gold  as  well  as  silver 
was  already  reckoned  an  article  of  merchandise.  It 
is  said  that  Abraham  departed  from  Egypt  "  very 
rich  in  cattle,  in  silver  and  gold." 


HISTORY  OF  THE  SCIENCE.  3 

From  Abraham's  time  to  the  present,  traffic  has 
employed  a  portion  of  the  activity  of  every  people 
not  utterly  savage.  Nineveh  "  multiplied  her  mer- 
chants above  the  stars  of  heaven,"  Tyre  became 
"the  royal  exchange  of  the  world."  Athens,  Car- 
thage, Alexandria,  Venice,  Amsterdam,  London,  and 
New  York,  have  each  in  turn  not  only  engaged  in 
domestic  exchanges,  but  also  "  have  ploughed  the 
deep  and  reaped  the  harvests  of  every  land !  " 

The  earliest  writer  known  to  us  who  treated  econo- 
mic subjects  at  any  length  is  Xenophon.  In  the  first 
half  of  the  fourth  century  before  Christ  this  accom- 
plished Athenian  published  two  tracts,  one  "  On  the 
Revenues  of  Athens,"  and  the  other  entitled  "  The 
Economist."  These  earliest  essays,  not  indeed  on 
Political  Economy,  but  on  some  of  the  subjects  with 
which  that  science  has  to  do,  contain,  together  with 
much  that  is  fallacious,  some  sound  and  liberal  prin- 
ciples. In  the  first  of  them  Xenophon  attempts  to 
point  out  the  modes  in  which  the  internal  resources 
of  Athens,  if  properly  developed,  might  be  made 
sufficient  to  balance  her  expenditures  without  the 
imposition  of  burdensome  taxes.  He  dwells  on  the 
abundance  of  her  natural  productions,  especially  her 
mineral  wealth,  and  her  advantages  as  an  emporium 
of  trade.  He  suggests  various  ameliorations  in  the 
condition  of  the  laboring  classes.  He  would  promote 
commerce,  and  augment  the  income  from  duties  by 
holding  out  inducements  to  foreign  ships  to  frequent 
the  ports  of  Athens,  by  a  more  honorable  treatment 
of  merchants,  by  enlarging  the  public  marts  and 
warehouses,  and  by  otherwise  facilitating  the  trans- 
action of  mercantile  business.     He  recommends  that 


4  ELEMENTS   OF  POLITICAL  ECONOMY. 

the  government  as  such  should  itself  undertake  com- 
mercial enterprises  ;  and  especially  urges  that  the 
silver  mines  of  Laurium  should  be  worked  on  gov- 
ernment account  and  on  a  better  system,  admitting 
however  private  persons  to  a  share  in  the  capital 
stock  and  its  returns.  In  conclusion  he  dwells  on 
the  importance  of  a  durable  peace  to  the  success  of 
every  measure  of  national  improvement.  In  the 
other  little  book  referred  to,  there  is  a  discussion  on 
the  origin,  nature,  and  value  of  property  ;  a  view  of 
the  various  parts  of  domestic  economy ;  and  a  pretty 
full  treatment  of  the  subject  of  agriculture.^ 

There  is  nothing  else  on  economical  topics  in  the 
whole  range  of  Greek  literature  that  approximates 
in  liberality  and  soundness  to  these  little  works  of 
Xenophon.  Plato,  in  his  book  called  the  "  Republic," 
correctly  sketches  one  important  principle  of  the  sci- 
ence, namely,  the  necessity  man  is  in,  from  his  mul- 
tifarious wants,  of  uniting  in  extensive  societies,  in 
which  each  individual  may  be  occupied  exclusively 
with  one  species  of  production  ;  but  this  speculative 
view  is  so  far  from  being  carried  out  to  its  practical 
application,  that  he  proposes  to  banish  entirely  arti- 
sans and  merchants  from  his  imaginary  common- 
wealth. Aristotle,  however,  has  sometimes  been  called 
the  father  of  Political  Economy.  He  was  not  the 
father  of  the  thing,  but  only  of  the  name.  He  was 
the  first  to  employ  the  expression  which  has  ever 
since  been  used  to  designate  the  science.  He  wrote 
a  treatise  entitled  "  Economics,"  on  the  relation  of 
man  towards  property ;  in  which  he  lays  down  the 
doctrine  that  the  bounty  of  nature  is  the  only  true 

1  Mure's  History  of  the  Greek  Literature. 


HISTORY  OF  THE  SCIENCE.  5 

source  of  wealth,  and  in  which  the  current  prejudices 
against  trading  and  the  interest  of  money  are  vehe- 
mently maintained.  "  Interest,"  he  says,  "  is  most 
reasonably  detested."  Aristotle,  whatever  his  merits 
in  other*  directions,  can  be  regarded  neither  as  the 
founder  of,  nor  a  very  important  contributor  to,  the 
science  upon  which  he  has  the  honor  of  conferring 
the  name. 

We  should  expect  beforehand  that  the  more  prac- 
tical Romans,  lovers  of  law  and  order,  and  exhibiting 
to  the  world  many  of  the  high  qualities  of  citizen 
life,  would  make  some  valuable  contribution  to  the 
science  of  exchanges.  In  this  we  are  disappointed. 
Though  in  the  earlier  and  better  days  of  Rome,  agri- 
culture was  highly  esteemed,  the  blighting  institution 
of  slavery  brought  labor,  the  mechanical  arts,  and 
commerce  more  and  more  into  disrepute.  The  lands 
were  tilled  by  slaves.  Slaves  became  the  artisans  of 
the  country.  As  always  happens  under  such  circum- 
stances, the  freemen,  the  citizens,  came  to  feel  them- 
selves above  such  degrading  occupations.  It  is 
pitiful  to  hear  Cicero  declaim  against  the  noble  rights 
of  labor.  In  the  De  Officiis  there  is  a  whole  para- 
graph of  condemnation  for  those  branches  of  manu- 
facturing and  commercial  industry  which  ought  to 
be  regarded  not  only  as  honorable  but  as  the  life  and 
strength  of  the  State.  One  sweep  of  his  pen  pushes 
out  of  the  pale  of  respectability  the  whole  class  of 
mechanics.  "  All  artisans  are  engaged  in  a  degrading 
profession,"  says  he.  Again,  "  there  can  be  nothing 
ingenuous  in  a  workshop."  Trade  and  commerce 
fare  no  better  at  his  hands.  "When  carried  on  on  a 
small  scale  they  are  to  be  regarded  as  disgraceful ; 


6  ELEMENTS   OF  POLITICAL  ECONOMY. 

when  on  a  large  scale  they  must  not  be  greatly  con- 
demned !  When  social  prejudices  and  views  of  labor 
like  these  are  promulgated  by  the  foremost  man  of 
his  time,  the  best  educated  and  the  most  liberal,  there 
is  no  longer  room  for  surprise  at  the  lack  of  Roman 
contributions  to  Political  Economy. 

Moreover,  the  Roman  moralists  regarded  the  accu- 
mulation of  wealth  as  pernicious  and  subversive  of 
those  virtues  in  which  they  placed  the  perfection  of 
character.  Luxuries  and  refinements  in  the  mode  of 
living,  which  are  the  result  of  accumulation,  found 
in  them  uncompromising  foes.  Old  Cato,  the  censor, 
in  his  severe  denunciations  of  wealth,  was  but  a 
representative  of  the  whole  class  of  moralists.  And 
this  ought  not  to  surprise  us  for  two  reasons.  The 
stream  of  the  Roman  wealth,  as  it  poured  in,  proved 
a  curse  and  not  a  blessing,  not  because  wealth  is  not 
a  blessing,  but  because  its  waters  instead  of  being 
diffused  everywhere,  falling  like  the  rain,  giving  in- 
creased comforts  to  the  poor,  and  adding  to  every 
man's  enjoyment,  rushed  at  once  into  a  few  huge 
reservoirs.  There  was  no  natural  distribution.  The 
source  of  the  wealth  too  was  as  illegitimate  as  its 
consumption.  It  did  not  come  from  the  peaceful 
and  gradual  development  of  the  national  resources. 
Instead  of  engaging  in  agriculture  and  raising  grain 
or  other  products  of  land,  instead  of  building  mills 
and  manufacturing  useful  articles,  or  by  any  other 
class  of  efforts  producing  something  for  exchange,  it 
was  the  Roman  method  to  conquer  rich  lands,  and 
then  subject  the  inhabitants  to  interminable  tolls  and 
taxes,  and  thus  endeavor  to  grow  rich  from  the  spoils 
of  the  industry  of  others.     A  comprehensive  theory 


HISTORY  OF  THE  SCIENCE.  7 

of  value  will  hardly  be  reached,  or  be  helped  for- 
ward, in  connection  with  such  views  of  labor  and 
such  moral  notions  as  the  Romans  entertained. 

During  the  Middle  Ages,  when  most  of  the  uni- 
versities of  Europe  were  founded,  the  monopoly  of 
knowledge  was  possessed  by  the  Catholic  clergy,  and 
to  them  was  naturally  intrusted  the  regulation  of  the 
universities,  and  the  establishing  their  courses  of 
study.  The  course  of  study  appointed  was  as  mea- 
gre and  scanty  as  the  personal  culture  of  the  priests. 
If  any  one  had  suggested  to  those  cadaverous  and 
sometimes  rope-begirded  monks,  that  they  should 
appoint  a  teacher  to  inquire  into  the  nature  of  value, 
the  laws  of  property,  and  the  principles  of  commerce, 
they  would  have  held  up  their  hands  in  pious  horror! 
The  prejudices  against  labor  and  manufactures  and 
commerce  were  still  strong.  The  monkish  ideas  that 
contact  with  the  world,  with  its  practical  questions 
and  concerns,  was  contaminating,  was  beneath  the 
dignity  of  the  scholar,  and  altogether  unworthy  of 
the  Christian,  was  slow  to  loose  its  hold.  But  the 
world  moves  on.  The  time  came  when  men  got  a 
glimpse  of  the  truth' that  the  end  of  knowledge  and 
science  is  a  practical  end,  that  their  utility  consists 
in  their  power  to  improve  the  condition  of  mankind, 
and  that  it  is  quite  as  worthy  the  attention  of  a 
rational  human  being  to  inquire  how  poverty  may 
be  prevented,  the  wants  of  the  masses  of  mankind 
met,  and  the  sum  of  human  happiness  increased,  as 
•to  spend  wearisome  days  and  nights  in  following  the 
intricacies  of  disputatious  schoolmen,  and  arriving  at 
last  through  mazes  of  metaphysical  distinctions  at 
results  about  as  satisfactory  as  the  schoolmen  actu- 


8  ELEMENTS  OF  POLITICAL  ECONOMY. 

ally  reached  after  a  long  controversy  in  the  case  of 
the  question,  "In  what  consists  personal  identity?" 
or,  more  specifically,  "  What  was  it  that  made  Peter 
Peter  and  not  John,  and  John  John  and  not  Peter?" 
namely,  "  that  John's  identity  consisted  in  his  John- 
ity,  and  Peter's  identity  consisted  in  his  Petricity  or 
Peterness ! " 

In  our  survey  thus  far,  bringing  us  down  we  will 
say  to  the  year  1600,  if  we  have  found  little  positive 
light  thrown  as  yet  upon  the  science  of  value,  we 
have  at  least  discovered  some  of  the  reasons  why 
such  light  could  not  be  thrown.  Absence  of  investi- 
gation and  discussion  however  does  not  necessarily 
imply  the  lack  of  a  theory.  In  truth,  there  was  a 
theory  of  value  which  marks  the  whole  period  we 
have  passed  under  review.  This  earliest  general 
theory  of  value  I  shall  venture  to  call  the  Bullion 
Theory.  From  the  fact  that  gold  and  silver,  owing 
merely  to  their  convenience,  came  to  be  the  money 
of  all  civilized  nations,  men  fell  into  a  curious  mis- 
take in  regard  to  them.  They  came  to  give  to  these 
metals  a  factitious  importance,  and  to  regard  them 
as  the  real  and  only  wealth.  They  overlooked  the 
fact  that  these  metals  are  a  commodity,  precisely  like 
any  other  commodity,  owe  their  value  to  labor,  pre- 
cisely like  any  other  commodity,  and  are  bought  and 
sold  like  any  other  commodity.  With  useful  products 
of  any  kind  one  can  always  buy  gold  and  silver. 
To  trade  is  nothing  but  to  barter  one  commodity  for 
another,  —  to  exchange  corn  for  silver  and  silver  for 
corn.  Unless  the  trade  is  fraudulent,  the  one  is 
equally  valuable  with  the  other ;  ^nd  it  would  seem 
as  if  the  simple  consideration  that  men  are  willing  to 


HISTORY  OF  THE  SCIENCE.  9 

part,  and  do  constantly  part,  with  gold  and  silver  to 
buy  other  things,  would  have  been  fatal  to  the  prej- 
udice that  the  precious  metals  are  the  only  wealth. 

There  were  however  two  things  that  seemed  to 
sustain  the  Bullion  theory.  One  was,  that  money  is 
always  the  measure  of  value.  "  How  much  is  it 
worth  ?  "  The  answer  comes,  so  many  dollars.  Dol- 
lars are  the  denomination  in  which  value  is  reckoned, 
just  as  degrees  of  the  thermometer  are  the  denomi- 
nation by  which  heat  is  measured.  The  difference 
between  value  itself  and  the  measure  of  value  —  be- 
tween a  bushel  of  wheat  and  that  round  measure  by 
which  we  determine  that  there  is  a  bushel  —  seems 
obvious  enough  ;  but  money  has  this  peculiarity,  it 
is  not  only  a  measure  of  value,  but,  so  far  as  this 
expression  is  ever  true  of  any  one  commodity,  it  has 
value  in  itself.  There  is  no  heat  in  a  thermometer, 
and  no  wheat  in  a  bushel-measure,  but  a  dollar  is  not 
only  a  dollar  measure,  but  a  dollar  value,  and  we  can 
see  how  the  fact  that  dollars  both  had  value  and  were 
the  measure  of  all  other  values,  gave  some  plausibil- 
ity to  the  notion  that  the  dollars  were  all.  The  other 
thing  that  made  the  Bullion  theory  plausible  was  the 
use  of  gold  and  silver  as  the  universal  medium  of 
exchange.  They  came  to  be  such  medium  simply  in 
consequence  of  their  convenience  and  their  nearly  uni- 
form value;  and  because  they  were  such  a  medium, 
everybody  wanted  them,  and  whoever  had  them 
could  get  with  them  whatever  else  he  wanted.  Be- 
cause the  great  thing  was  to  get  money,  men  seemed 
to  think  that  money  was  the  only  thing  to  be  got ! 

I  cannot  find  that  the  Bullion  theory  had  anything 
better  to  support  it  than  these  two  deceptive  pillars  ; 


10  ELEMENTS   OF  POLITICAL  ECONOMY. 

and  yet  from  very  early  time  still  long  after  the  dis- 
covery of  America,  it  was  considered  by  the  whole 
commercial  world  to  stand  on  an  immovable  basis. 
The  commercial  policy  that  sprung  from  this  theory 
was  obvious  and  universal.  If  gold  and  silver  are 
the  only  wealth,  then  by  all  means  keep  the  gold  and 
silver  in  the  country  !  Get  all  you  can  in,  and  let  as 
little  as  possible  out !  Accordingly  very  early  the 
nations  passed  laws  to  prohibit  the  exportation  of 
gold  and  silver.  We  learn  from  Cicero,  incidentally, 
that  this  was  done  repeatedly  at  Rome.  In  one  of 
his  orations  he  says,  "  The  Senate  solemnly  decreed 
both  many  times  previously,  and  again  when  I  was 
consul,  that  gold  and  silver  ought  not  to  be  exported." 
According  to  Adam  Smith  there  are  ancient  acts  of 
the  old  Scotch  Parliament,  which  prohibit  under 
heavy  penalties  the  carrying  gold  and  silver  forth  of 
the  kingdom.  The  same  thing  was  done  by  France 
and  England,  and  probably  by  every  other  nation  in 
Europe.  To  encourage  the  importation  of  the  pre- 
cious metals,  and  discourage  their  exportation,  seemed 
to  them  the  high  road  to  national  wealth.  And  in- 
deed it  would  have  been,  had  the  Bullion  theory 
been  correct.  But  the  Bullion  theory  was  not  cor- 
rect. The  clearness  of  our  views  in  Political  Econ- 
omy will  largely  depend  upon  our  thorough  emanci- 
pation from  the  prejudice  that  gold  and  silver  are 
any  more  valuable  or  anymore  desirable  than  the 
products  for  which  they  exchange.  They  constitute 
a  part,  but  only  a  small  fractional  part,  of  the  values 
of  any  country. 
\y  About  the  year  1600,  there  sprung  up  in  Europe 
a  second  general  commercial  theory,  which  is  usually 


HISTORY  OF  THE  SCIENCE.  11 

termed  the  Mercantile  System.  It  took  its  origin 
somewhat  in  this  way.  The  discovery  of  an  ocean 
path  to  the  Indies,  the  great  improvements  in  navi- 
gation, and  the  general  waking  up  of  the  spirit  of 
enterprise  in  the  preceding  century,  gave  a  vast 
extension  to  commerce.  The  English  merchants, 
particularly,  found  the  prohibitions  against  the  ex- 
portation of  gold  and  silver  very  inconvenient. 
They  found  that,  by  can-ying  gold  and  silver  to  the 
East  Indies,  they  could  bring  back  articles  worth 
greatly  more  in  England  than  the  specie  they  car- 
ried out;  that  is,  with  the  imports  they  brought  in 
they  could  buy  more  gold  and  silver  than  the  sum 
they  had  exported.  Therefore,  in  the  year  1600,  the 
English  East  India  Company  asked  and  obtained 
leave  of  Parliament  to  export  a  limited  quantity  of 
gold  and  silver.  The  adherents  of  the  old  theory 
raised  a  great  storm,  alleging  that  this  Company 
would  impoverish  the  kingdom  by  gradually  drain- 
ing off  the  gold  and  silver,  that  is,  the  national 
wealth. 

The  advocates  of  the  Company,  on  the  other 
hand,  though  they  did  not  venture  to  assail  the  doc- 
trine that  wealth  consists  in  gold  and  silver  alone, 
took  narrower  ground,  and  asserted  that  the  export 
of  money  is  advantageous,  whenever  the  articles 
bought  by  it  and  imported,  are  chiefly  reexported  to 
other  countries  and  sold  for  as  much  money  as  was. 
originally  carried  out;  and  also  whenever  the  export 
of  coin,' and  the  consequent  import  of  commodities, 
occasions,  though  indirectly,  a  greater  value  of  ex- 
ports from  home  of  native  products.  Thomas  Mun, 
a  writer  of  that  period,  quoted  by   Adam    Smith, 


12  ELEMENTS  OF  POLITICAL  ECONOMY. 

compares  the  trade  of  the  merchant  exporting  gold 
and  silver,  to  the  seed-time  and  harvest  of  agricul- 
ture. ''If  we  only  behold,"  says  he,  "the  actions 
of  the  husbandman  in  the  seed-time,  when  he  cast- 
eth  away  much  good  corn  into  the  ground,  we  shall 
account  him  rather  a  madman  than  a  husbandman. 
But  when  we  consider  his  labors  in  the  harvest, 
which  is  the  end  of  his  endeavors,  we  shall  find  the 
worth  and  plentiful  increase  of  his  actions."  In  a 
word,  the  Mercantile  System  reasoned  thus  :  If  a 
country  only  exports  more  than  it  imports,  then  the 
balance  must  come  back  in  gold  and  silver ;  and  if 
it  keeps  exporting  more  than  it  imports,  and  the 
balance  keeps  coming  back  in  gold  and  silver,  then 
the  country  must  grow  rich.  Hence  the  great  and 
only  care  was  to  preserve  the  balance  of  trade,  as  it 
was  called.  A  famous  phrase  this,  the  balance  of 
trade!  The  legislation,  the  diplomacy,  the  politics 
of  the  two  centuries  preceding  the  present  were  full 
of  it. 

By  the  balance  of  trade  was  meant  the  excess  of 
the  value  of  the  commodities  exported  over  the 
value  of  the  commodities  imported,  which  excess,  it 
was  supposed,  would  always  come  back  in  the  form 
of  gold  and  silver.  Hence  unlimited  pains  were 
taken  to  make  the  exports  greater  than  the  imports, 
and  the  excess  was  regarded  as  the  measure  of  a 
country's  commercial  prosperity.  Various  devices 
were  employed  to  make  the  exports  great  and  the 
imports  little.  To  increase  the  amount  of  exports, 
bounties  were  offered  to  domestic  producers,  to  en- 
courage them  to  sell  as  much  as  possible  to  foreign 
countries.    With  the  same  end  in  view,  the  raw  ma- 


HISTOEY  OF  THE  SCIENCE.  13 

terials  of  domestic  manufactures  were  forbidden  to 
be  exported,  so  that  the  finished  products,  thereby- 
rendered  greater  in  amount,  ^might  help  swell  the 
exports.  Colonies  were  planted  with  similar  intent, 
that  the  mother  country  might  find  an  open  market 
there,  and  swell  her  exports. '  To  diminish  the  aggre- 
gate of  imports,  prohibitions  were  laid  on  the  bring- 
ing in  from  abroad  articles  which  could  be  made  or 
grown  at  home;  and  heavy  restrictions  imposed  on 
imports  from  those  countries  with  which  the  balance 
was  supposed  to  be  unfavorable,  while  the  same 
articles,  perhaps  of  an  inferior  quality,  were  admit- 
ted on  easier  terms  from  countries  with  which  the 
balance  was  supposed  to  be  better.  Thus  every- 
thing was  sought  to  be  regulated  in  view  of  an 
imaginary  balance  of  trade.  The  Mercantile  System 
was  the  prolific  mother  of  those  commercial  restric- 
tions, those  attempted  regulations  of  manufactures, 
those  doctrines  of  monopoly,  of  corn-laws,  and  colo- 
nies, which  have  fettered  industry  almost  up  to  the 
present  time. 

The  particular  fallacies  that  lurk  in  the  Mercantile 
System,  and  the  tortuous  and  cramping  policy  that 
grew  out  of  it,  will  be  more  fitly  discussed  at  a  later 
stage  of  our  inquiries ;  this  is  a  proper  place  to  indi- 
cate in  general  that  the  whole  system  is  based  on  a 
misapprehension.  It  overlooks  entirely  the  mutual 
benefit  to  the  parties  of  every  act  of  exchange,  with- 
out which  benefit  the  exchange  clearly  would  not 
take  place  at  all,  and  makes  the  whole  advantage  of 
commerce  consist  in  a  certain  balance  of  gold  and 
silver,  which  comes  back  to  that  one  of  the  parties 
which  has  managed  to  part  with  more  of  its  own 


14  ELEMENTS  OF  POLITICAL  ECONOMY. 

commodities.  It  seems  strange  that  it  did  not  occur 
to  those  people,  that,  if  it  were  worth  while  to  trade 
at  all,  the  benefits  oi  the  trade  were  rather  to  be 
measured  by  the  amount  and  value  of  what  was 
received,  than  by  the  amount  and  value  of  what 
was  parted  with!  Moreover,  the  system  takes  for 
granted,  that  traders  carry  forth  goods  to  foreign 
countries  to  receive  back  goods  and  bullion  worth  as 
much,  —  less  goods,  indeed,  and  the  balance  in  bul- 
lion. Why  on  that  principle  should  the  goods  be 
carried  forth  at  all  ?  The  labors,  the  risks,  and  the 
exchanges  all  made;  the  goods  and  the  balance 
received;  and  the  country  just  as  well,  but  no  bet- 
ter off  than  before !  One  thing  is  certain  and  obvi- 
ous. Unless  the  imports,  whether  including  any 
specie  balance  or  not,  are  worth  more  to  the  country 
importing,  than  the  exports,  they  certainly  would 
not  be  imported.  This  difference  of  value  in  favor 
of  the  imports  is  precisely  the  motive  for  the  impor- 
tation. If  they  are  worth  only  as  much  as,  or  less 
than,  what  is  exported  to  pay  for  them,  where  is  the 
advantage  of  the  trade  ?  Speaking  generally,  then, 
the  value  of  the  imports  into  any  country  is  always 
greater  than  the  value  of  the  exports,  the  comparison 
of  course  being  made  in  that  country  and  not  else- 
where. The  whole  wisdom  of  the  Mercantile  Sys- 
tem was  to  sell  as  much  as  possible  and  buy  as  little 
as  possible,  —  a  wisdom  which  is  evident  folly,  inas- 
much as,  universally  applied,  it  would  destroy  the 
commerce  of  the  world. 

The  leading  commercial  nations  of  Europe,  nev- 
ertheless, fell  into  the  meshes  of  the  Mercantile 
System.      Portugal,    Spain,    France,    Holland,   and 


HISTORY  OF  THE  SCIENCE.  15 

England,  all  gave  their  attention  to  the  balance  of 
trade,  all  laid  restrictions  on  the  natural  freedom 
of  industry,  and  all  applied  the  system  rigidly  to 
their  colonial  dependencies.  These  restrictions  on 
trade,  especially  on  the  importation  of  manufactured 
goods,  and  on  the  exportation  of  corn  and  raw  mate- 
irals,  to  say  nothing  of  the  bounties  which  the  people 
were  taxed  to  pay,  were  to  the  last  degree  vexatious 
and  onerous ;  while  the  penalties  for  their  infringe- 
ment were  in  many  cases  cruel  and  even  barbarous. 
Various  writers  in  the  different  countries,  and  partic- 
ularly in  England,  where  the  laws  in  question  were, 
perhaps,  the  most  oppressive,  began  to  attack  the  mer- 
cantile theory  and  the  policy  that  had  grown  out  of 
it.  And  it  is  to  this  series  of  writers  in  long  succes- 
sion, some  overthrowing  one  false  position,  and  some 
another,  one  establishing  a  truth  here  and  another 
there,  that  we  owe  the  gradual  development  and 
present  state  of  the  science  of  Political  Economy. 
The  science  has  gradually  emerged  from  the  waves 
of  thought  dashing  and  roaring  around  the  Mercan- 
tile System.  It  is  still  necessary,  at  least  on  the 
continent  of  Europe  and  in  the  United  States,  to 
combat  some  of  the  remains  of  the  old  mercantile 
legislation.  England  is  believed  to  be  the  only  coun- 
try which  has  erased  from  her  statute-book  the  last 
vestiges  of  the  system.  This  she  has  done  in  direct 
consequence  of  the  skill  and  power  with  which  the 
political  economists  have  guided  the  public  opinion 
of  that  country ;  and  it  is  on  account  of  their  suc- 
cess, as  well  as  on  account  of  the  superior  num- 
bers and  weight  of  English  thinkers  in  this  field  of 
inquiry,  that  it  is  proper  now  to  consider  first  the 


16  ELEMENTS  OF  POLITICAL  ECONOMY. 

English  contributors  to  the  modern  science  of  Politi- 
cal Economy.  We  shall  then  attend  to  what  the 
French  have  done  towards  building  up  the  science  ; 
and,  with  a  few  remarks  on  the  Italian  and  German 
writers,  shall  close  this  sketch  with  a  brief  recital  of 
American  views  and  writers. 

In  the  last  three  decades  of  the  seventeenth  cen- 
tury, there  appeared  in  England  several  tracts  and 
treatises,  attacking  the  crooked  industrial  and  com- 
mercial policy  of  the  time.-^  Only  three  writers  of 
that  period  will  here  be  instanced.  The  first  of  these 
is  Sir  William  Petty,  whose  views  of  money  in  par- 
ticular are  remarkably  sound.  He  fully  exposes  the 
current  notion  that  a  nation  can  be  drained  of  its 
cash  by  an  unfavorable  balance  of  trade.  He  con- 
demns the  laws  regulating  the  rate  of  interest, 
observing  that  there  might  as  well  be  laws  regulat- 
ing the  rate  of  insurance.  He  ridicules  the  idea 
that  tolls  and  customs  and  barriers  are  advantageous 
to  trade.  And  he  was,  perhaps,  the  first  to  lay  down 
the  doctrine  that  the  value  of  commodities  is  deter- 
mined by  the  labor  required  for  their  production.  In 
1691,  Sir  Dudley  North  published  "  Discourses  on 
Trade."  How  liberal  and  intelligent  this  writer  was, 
how  decidedly  in  advance  of  his  time,  may  be  judged 
of  by  the  following  doctrines,  which  he  lays  down 
as  fundamental :  That  the  whole  world,  as  to  trade, 
is  but  as  one  nation  ;  that  there  can  be  no  trade  un- 
profitable to  the  public,  for  if  any  prove  so,  men 
leave  it  off,  and  wherever  the  traders  thrive,  the  pub- 
lic, of  which  they  are  a  part,  thrive  also  ;  that  money 
is  a  merchandise  whereof  there  may  be  a  glut  as 

1  McCulloch's  Introductory  Discourse. 


HISTORY  OF   THE  SCIENCE.  17 

well  as  scarcity ;  and  that  rponey  exported  in  trade 
is  an  increase  to  the  wealth  of  the  nation.  In  his 
"  Essay  on  Civil  Government,"  published  in  1690, 
at  the  request  of  William  and  Mary,  and  for  the 
justification  of  the  English  Revolution  of  1688, 
John  Locke  incidentally  illustrated  the  distinction 
between  utility  and  value,  and  all  but  established 
this  one  of  the  fundamental  doctrines  of  Political 
Economy  :  that  value  is  the  birth  of  effort,  and  not 
the  gift  of  Providence.  In  the  controversy  concern- 
ing the  recoinage  of  silver  money  in  the  same  reign, 
Locke  did  good  service  by  his  tracts  on  money,  in 
preventing  the  lowering  of  the  currency  standard, 
and  in  diffusing  sound  principles  on  the  nature  of 
money .^  Locke  taught  as  forcibly  as  had  Petty  and 
North,  that  it  was  as  absurd  for  the  State  to  attempt 
to  fix  the  price  of  money,  as  to  fix  the  price  of  cut- 
lery or  broadcloth. 

During  the  next  century,  that  is,  the  last  century, 
practical  questions  of  taxation,  or  the  rate  of  inter- 
est, or  the  vexed  questions  of  trade,  drew  out  in 
England  a  multitude  of  tracts  and  treatises,  many 
of  them  containing  valuable  hints  and  arguments, 
and  the  ablest  of  them  all  being  unquestionably  the 
Political  Essays  of  David  Hume.  These  appeared 
in  1752.  Among  them  are  essays  on  Commerce, 
Interest,  Balance  of  Trade,  Jealousy  of  Trade,  and 
Public  Credit.  His  views  are  enlightened  and  lib- 
eral ;  not  always  sound,  but  always  interesting.  He 
did  not  profess,  however,  to  analyze  value,  or  to 
ground  comprehensively  the  science  of  Political 
Economy.      That    attempt  was    first    successfully 

1  Macaulay's  England,  chap.  xxi. 
2 


18  ELEMENTS  OF  POLITICAL  ECONOMY. 

made  by  Dr.  Adam  Smith,  Professor  in  the  Uni- 
versity of  Glasgow,  who  published  in  1776,  his  great 
work  on  the  Wealth  of  Nations,  in  which  many  of 
the  more  important  propositions  of  the  science  are 
established  beyond  the  reach  of  controversy.  It  will 
be  noticed  that  the  publication  of  this  work  took 
place  in  the  very  year  in  which  American  Indepen- 
dence was  declared ;  and  it  was  itself  a  sort  of  decla- 
ration of  independence  of  the  false  principles  and 
foolish  policy  of  the  Mercantile  System.  Like  the 
document  of  Jefferson,  it  excited  universal  atten- 
tion:  like  that,  it  marks  an  era;  and  the  results  in 
the  economical  world  of  the  treatise  of  Smith  have 
been  scarcely  less  striking  and  beneficent  than  the 
results  in  the  political  world  of  the  document  of 
Jefferson.  Indeed,  the  merits  and  originality  of  Dr. 
Smith  are  so  great,  that  he  has  frequently  been 
called  the  father  of  Political  Economy.  It  is  hardly 
just  that  that  title  should  be  given  to  any  man  ;  but 
if  it  is  to  be  worn  by  anybody,  it  must  most  assur- 
edly be  conceded  to  him.  He  exalts  labor,  shows 
the  advantages  of  its  division,  and  advocates  its  un- 
shackled freedom  in  all  departments;  he  unfolds 
the  benefits  of  commerce,  and  demonstrates  the 
absurdity  of  the  restrictive  and  regulating  devices 
of  the  Mercantile  System;  he  discusses  money, 
wages,  profits,  rent,  taxation,  and  public  expendi- 
T~tures.  The  defects  of  the  Wealth  of  Nations  are 
mainly  these :  a  want  of  clear  definitions ;  an  illog- 
ical arrangement ;  an  inconsistency  sometimes  with 
its  own  principles,  as  when  allowing  that  a  State 
may  regulate  the  rate  of  interest ;  a  preference,  in  its 
I  theory  of  value,  for  material  commodities ;  a  want 


HISTORY  OF  THE  SCIENCE.  19 

of  clear  perception  of  the  difference  between  utility 
and  value,  and  a  consequent  partial  confusion  in  the 
whole  doctrine  of  values;  and  lastly,  a  prolixity 
which  is  at  times  tedious.  These  defects  and  some 
others  have  been  pointed  out,  and  valuable  addi- 
tional contributions  to  the  science  made,  by  suc- 
ceeding English  writers.  The  principal  of  these  are 
Mr.  Ricardo,  Mr.  McCulloch,  Mr.  DeQuincey,  Mr. 
Senior,  and  especially,  Mr.  John  Stuart  Mill.  The^ 
work  of  the  last-mentioned  writer,  while  sharing  in 
the  fault  common  to  all  these  English  books,  namely, 
a  too  exclusive  attention  to  the  material  over  the 
other  forms  of  value,  is  the  best  single  treatise  on 
the  subject  in  the  English  language. 

If  the  French  have  done  less  than  the  English  in 
building  up  the  science  of  Political  Economy,  they 
have  done  well  what  they  have  done.  They  have 
the  honor  of  publishing  the  very  first  general  treatise 
under  the  title  of  "  Political  Economy."  It  was  issued 
at  Rouen  in/1615.  To  them  also  is  due  the  credit 
of  having  furnished  the  first  writer  who  undertook 
a  systematic  analysis  of  the  sources  of  value,  and 
whose  ingenious  speculations  gave  rise  to  the  first 
school  of  Political  Economy.  This  was  M.  Ques- 
nay,  a  physician  attached  to  the  court  of  Louis  XV., 
whose  book  was  published  in  1758.^  His  funda- 
mental positions  expressed  the  reaction  from  the 
principles  of  the  Mercantile  System  as  embodied  in 
the  policy  of  Colbert,  the  famous  finance  minister  of 
Louis  XIV.  That  policy  gave  a  decided  preference 
to  the  industry  of  the  towns  and  cities.  M.  Ques- 
nay  appeared  as  the  champion  of  agriculture.     His 

1  Adam  Smith.    Book  iv.,  chap.  ix. 


20  ELEMENTS  OF  POLITICAL  ECONOMY. 

system  assumes  that  the  physical  earth  is  the  only 
source  of  wealth,  and  consequently  that  labor  is 
incapable  of  producing  any  new  value  except  when 
employed  in  agriculture.  Artisans  and  merchants 
are  unproductive  laborers,  because  there  is  no  nett 
produce  remaining,  as  in  agriculture,  over  and  above 
the  expenses  of  production.  The  system  mistook 
the  nature  of  rent;  and  falsely  though  tacitly  as- 
sumed that  wealth  consists  in  matter.  The  novelty 
of  the  theory  however,  its  scientific  shape,  and  the 
liberal  commercial  policy  coupled  with  it,  gave  it  for 
a  time  a  great  reputation ;  and  it  numbered  among 
its  disciples  no  less  persons  than  Turgot,  the  finan- 
cier, and  the  elder  Mirabeau.  The  disciples  of  Ques- 
nay  were  called  Economists  or  Physiocrats.  In 
1802,  appeared  in  Paris,  Say's  Political  Economy. 
Say  is  throughout  an  eminently  skilful  expositor  of 
the  science,  while  his  own  especial  contribution  is 
a  demonstration  of  the  impossibility  of  a  general 
glut,  —  a  general  over  production.  He  is  an  able  ad- 
vocate of  the  freedom  of  commerce.  But  the  book 
which  has  carried  Political  Economy  to  its  most 
advanced  position,  and  the  most  important  contri- 
bution to  the  science  since  the  time  of  Adam  Smith, 
was  published  in  Paris  in  1850.  Its  author  was 
Frederic  Bastiat,  who  died  the  same  year.  Its  title 
is  "  Harmonies  of  Political  Economy."  It  is  the  first 
volume  of  what  was  designed  to  be  a  larger  work ; 
and  in  it  there  is  a  vigorous  demonstration  of  the 
harmonious  mechanism  of  society,  by  which,  through 
the  agency  of  liberty  and  property,  God  has  de- 
signed the  progressive  amelioration  of  mankind. 
"All  legitimate  interests   are   in   harmony,"    is   the 


HISTORY  OF  THE  SCIENCE.  21 

key-note  of  the  book.  While  unfolding  the  laws  of 
value  in  their  manifold  applications,  Bastiat  inciden- 
tally but  most  effectually  demolishes  the  vagaries  of 
communism,  and  establishes  the  right  of  property 
upon  unassailable  grounds.  Some  of  the  positions 
of  this  book  have  been  claimied  by  Mr.  Henry  C. 
Carey,  of  Philadelphia,  as  original  with  himself;  and 
it  seems  probable  that  M.  Bastiat  did  profit  by  some 
of  the  views  of  Mr.  Carey,  but  the  substantial  origi- 
nality and  the  uncommon  merit  of  the  French 
writer  are  undeniable. 

The  Italian  aiid  German  writers,  although  volu- 
minous and  respectable,  have  originated  compara- 
tively little  within  the  field  of  this  science.  The  first 
professorship  of  Political  Economy  was  established 
in  Italy  in  1764 ;  and  able  men  are  teaching  the  sub-  j 
ject  in  most  of  the  German  universities  at  present. 

The  circumstances  of  the  United  States,  as  well 
in  colonial  vassalag^^s  in  an  independent  position, 
their  experience  with  almost  every  variety  of  paper 
money,  the  alternations  of  the  national  policy  in 
respect  to  trade,  the  long  continued  public  discus- 
sions on  the  tendencies  and  results  of  a  protective 
tariff,  and  the  efforts-^— State  and  National  —  which 
have  been  made  towards  realizing  a  healthful  cur- 
rency, have  been  favorable  to  the  cultivation  of 
economical  studies.  It  is  not  true,  however,  that 
many  works  of  decided  merit  have  yet  appeared  in 
the  United  States.  Daniel  Raymond's  "  Thoughts 
on  Political  Economy,"  published  at  Baltimore  in 
1820,  are  remarkable  only  as  being  the  first  formal 
treatise  published  in  this  country.  Fourteen  years 
later,  John  Rae,  a  Scotchman,  published  at  Boston 


22  ELEMENTS  OF  POLITICAL  ECONOMY. 

a  book  on  the  subject,  which  has  elicited  a  strong 
commendation  from  John  Stuart  Mill.  He  says  of 
it :  "  In  no  other  book  known  to  me,  is  so  much 
light  thrown,  both  from  principles  and  history,  on  the 
j?auses  which  determine  the  accumulation  of  capi- 
\  tal."  The  only  other  American  writer  whose  name 
requires  to  be  mentioned  in  this  connection,  is  Mr. 
Carey,  whose  economical  works  have  been  published 
at  intervals  between  1835  and  1860.  It  is  impossible 
in  this  place  to  characterize  at  any  length  the  pecu- 
liar views,  many  of  them  original  and  important, 
which  are  brought  out  in  these  publications.  Among 
them  may  be  enumerated  the  following :  That  it  is 
not  so  much  the  cost  of  production  as  what  would 
be  the  cost  of  reproduction,  that  determines  the 
value  of  commodities;  that  the  real  interests  of 
classes  and  individuals  are  essentially  harmonious ; 
that  there  is  a  constant  tendency  to  increase  in  the 
wages  of  labor,  and  to  diminution  in  the  rate, 
though  to  increase  in  the  aggregate,  of  the  profits 
of  capital ;  that  the  well-being  and  advancement  of 
society  correspond  to  the  degrees  of  association  and 
of  liberty  which  exist  in  it;  and  that  the  prices  of 
land,  labor,  and  raw  materials,  tend  constantly  to 
approximate  the  prices  of  finished  commodities,  and 
in  the  closeness  of  this  approximation  is  to  be  found 
the  best  gauge  of  advancing  civilization. 


[^ 


FIELD  OF  THE  SCIENCE.  23 


"<A 


CHAPTER   II. 

FIELD  OF   THE  SCIENCE. 

When  Adam  Smith  taught  Political  Economy  in 
the  University  of  Glasgow,  it  was  as  a  branch  of 
moral  philosophy,  and  the  substance  of  his  "Wealth  V 
of  Nations"  was  delivered  first  in  the  form  of  lectures, 
which  made  up  a  part  of  his  moral  philosophy  course. 
That  course  was  divided  into  four  parts :  the  first  com- 
prising natural  theology ;  the  second,  ethics,  or  what 
Paley  terms  the  science  of  duty  and  the  reasons  of 
it ;  the  third  jurisprudence,  or  that  part  of  morality 
which  relates  to  justice ;  while  in  the  fourth  part  he 
examined  those  poHTtcal  and  social  regulations  which 
are  founded  on  expediency,  and  which  tend  to  in- 
crease the  prosperity  and  power  of  a  State. 

Now,  expediency  is  so  radically  distinct  from  duty 
tl\at  there  is  no  need  of  proving  that  Political  Econ- 
onW  is  not  to  be  reckoned  a  part  of  moral  philosophy 
at  alk  The  idea  of  obligation,  on  which  the  science 
of  morals  is  founded,  and  the  idea  of  value  on  which 
the  science  of  economy  is  founded,  are  totally  dis- 
tinct ideas.  There  is  one  word  that  marks  and  cir- 
cumscribes the  field  of  morals.  That  word  is  Ought. 
There  is  one  word  that  marks  and  circumscribes  the 
field  of  economy.  That  word  is  Value.  Political 
Economy  does  not  aspire  to  place  its  feet  upon  the 
ponderous  imperatives  of  moral  obligation.     It  finds 


24  ELEMENTS  OF  POLITICAL  ECONOMY. 

a  solid  and  adequate  footing  upon  the  expedient  and 
the  useful.  As  a  science,  it  does  and  must  discuss 
and  decide  all  questions  upon  economical  grounds 
alone.  As  a  science,  it  has  no  concern  with  ques- 
tions of  moral  right.  If  it  favors  morality,  it  does  so 
because  morality  favors  production.  It  favors  hon- 
esty because  honesty  favors  exchange.  It  puts  the 
seal  of  the  market  upon  all  the  virtues.  It  condemns 
slavery,  not  because  slavery  is  morally  wrong,  but 
because  it  is  economically  ruinous.  Moral  science 
appeals  only  to  an  enlightened  conscience,  and  cer- 
tain condtict  is  approved  because  it  is  right,  and  for 
no  other  reason.  Political  Economy  appeals  only 
to  an  enlightened  selfishness,  and  exchanges  are 
made  because  they  are  mutually  advantageous,  and 
for  no  other  reason.  Each  of  the  two  sciences,  there- 
fore, has  a  distinct  basis  and  sphere  of  its  own.  The 
grounds  of  Economy  and  morals  are  independent  and 
incommensurable. 

Every  science,  however,  has  its  points  of  contact 

i   with  other  sciences ;  and  this  is  particularly  the  case 

I  with  Political  Economy  in  relation  to  moral  science, 

'  and  is   the   reason    why  the  two  have   sometimes 

been  confounded.    The  sound  conclusions  of  the  one 

are  harmonious  with  the  sound  conclusions  of  the 

other.     Both  work  together  for  the  good  of  men,  for 

the  amelioration  of  their  condition.     Their  spheres, 

though  distinct,  nevertheless  touch  each  other.    Duty 

and  interest  lie  alongside.     The   ultimate   analysis 

of  property,  for  example,  will,  as  we  shall  see,  lead 

the  inquirer  into  the  higher  region  of  moral  science. 

In  legislation  also,  the  question  is  frequently  at  the 

same  time  an  economical  and  a  moral  question.     Dr. 


FIELD   OF  THE  SCIENCE.  25 

Wayland  has  observed  that  "  almost  every  question 
of  the  one  science  may  be  argued  on  grounds  belong- 
ing to  the  other."  But  the  grounds  themselves,  it  is 
important  to  remark,  must  be  seen  to  be,  and  must 
be  kept,  distinct. 

In  the  next  place,  the  very  name  of  the  science  in-M 
dicates  that  it  is  a  political,  that  is,  a  social  science.  {^ 
It  relates  to  men  in  a  state  of  society,  and  not  to 
nien  in  a  state  of  isolation.  The  hermit,  who  neither 
buys  nor  sells,  who  neither  gives  nor  receives  any-, 
thing  in  exchange,  is  not  amenable  to  the  laws  of 
Political  Economy.  So  far  as  men  satisfy  their  own 
wants  by  their  own  efforts  without  exchange,  they 
stand  outside  the  pale  of  this  science.  Under  those 
circumstances  the  idea  of  value  could  neither  have 
birth  nor  being,  and  of  course  there  would  be  no 
such  thing  as  a  science  of  value.  Robinson  Crusoe 
came  to  lead  a  very  tolerable  life  upon  his  desolate 
island  by  means  erf^his  own  industry.  He  worked, 
but  then  he  worked  to  satisfy  his  own  wants  directly. 
He  did  everything  for  himself.  He  had  no  oppor- 
tunity to  buy  anything,  sell  anything,  exchange  any- 
thing. The  whole  course  of  such  a  life  could  never 
have  developed  the  idea  of  value,  and  the  record  of 
the  whole  experience  of  such  a  solitary  individual 
would  require  no  such  word  as  value.  If  God  had 
made  men  so  that  their  varied  wants  would  best  be 
met  by  applying  their  own  efforts  to  satisfy  these 
wants  directly,  without  the  intervention  of  exchange, 
there  would  have  been,  there  could  have  been,  no 
such  science  as  the  one  to  w,hich  attention  is  now.di- 
rected.  In  that  case,  men  would  live,  if  they  lived 
at  all,  in  perfect  isolation.    Every  man  would  satisfy 


v^ 


26  ELEMENTS  OF  POLITICAL  ECONOMY. 

his  own  desires  by  his  own  efforts.     There  would  be 
no  society,  and  no  exchange. 

But  it  is  evident  at  the  very  first  glance,  that  the 
Creator  has  not  made  men  thus.  Society  is  God's 
handiwork.  It  is  the  most  complicated  and  the 
most  wonderful,  as  it  was  the  final,  work  of  his 
hands.  The  first  man,  as  he  stood  alone  in  Para- 
dise, was  indeed  a  wonderful  structure,  —  wonderful 
in  his  body,  and  in  all  his  mental  and  spiritual  pow- 
ers. But  it  was  not  good  that  the  man  should  be 
alone.  Society  must  be  provided  for ;  and  in  pro- 
viding for  a  society  of  human  beings,  God  impressed 
upon  that  organization,  as  upon  all  others,  its  own 
proper  and  peculiar  laws.  These  laws  embrace  its 
entire  organization,  in  its  lower,  as  well  as  in  its 
higher,  parts.  They  cover  the  phenomena  of  ex- 
change, just  as  they  cover  the  phenomena  of  morals  ; 
and  no  intelligent  observer  can  watch  their  working, 
when  left  intact  and  free,  without  being  stimulated 
and  gladdened  by  the  beneficent  results  to  which 
they  lead.  If  the  footsteps  of  providential  intelli- 
gence be  found  anywhere  upon  this  earth,  if  proofs 
of  God's  goodness  be  anywhere  discernible,  they  are 
discernible,  and  are  found  in  the  fundamental  laws 
of  society.  Certainly,  if  every  man  could  satisfy  all 
his  desires  as  well,  by  putting  forth  his  efforts  to  that 
end  directly,  he  would  do  it.  He  would  grow  his 
own  food,  make  his  own  clothes,  write  and  publish 
his  own  newspaper,  be  his  own  doctor,  in  one  word, 
perform  all  needed  services  for  himself.  But  God 
has  so  ordered  it  that  he  cannot  do  this.  He  cannot, 
in  a  state  of  isolation,  with  all  his  efforts,  procure  for 
himself  one  thousandth  part  of  the  comforts  which 


FIELD  OF  THE  SCIENCE.  27 

he  easily  procures  for  himself  by  less  efforts,  through 
exchange.  Society  and  exchange  are,  under  God's 
ordination,  matters  of  necessity,  if  men  are  to  rise  in 
a  scale  of  comforts  perceptibly  above  the  brutes. 
And  the  reason  is  this.  There  are  obstacles,  in  all 
directions,  to  the  satisfaction  of  men's  desires.  If 
the  desires  are  to  be  met,  these  obstacles  are  to  be 
surmounted.  But  if  one  man  undertakes  to  sur- 
mount any  considerable  number  of  these  obstacles, 
he  miserably  fails.  His  powers  are  not  adequate  to 
the  task ;  and  hence  we  say,  that  in  a  state  of  isola- 
tion, men's  wants  exceed  their  powers.  But,  if  he 
devote  himself  to  surmounting  one  class  of  obstacles, 
as,  for  instance,  those  in  the  way  of  procuring  suita- 
ble clothing,  his  powers  are  adequate  to  this,  he  soon 
acquires  skill  in  it,  he  learns  to  avail  himself  of  the 
gratuitous  help  of  Nature,  and  the  facilitating  pro- 
cesses of  art,  he  is  able  to  realize  large  products  along 
ijiis  line,  and  is  n6V  in  position  to  offer  valuable  ser- 
vices to  society.  Meanwhile  other  men  have  been 
devoting  themselves  each  to  another  class  of  obsta- 
cles, have  concentrated  effort  and  skill  upon  them, 
have  succeeded  by  the  help  of  Nature  and  art  in  sur- 
mounting them,  and  now  offer  their  valuable  services 
to  society. 

Now,  then,  these  services  are  mutually  exchanged 
in  all  directions,  and  men  find,  as  it  is  God's  clear 
design  that  they  should  find,  that,  by  making  given 
efforts  along  one  line,  and  exchanging  them  for  cor- 
responding efforts  along  other  lines,  they  obtain  vast- 
ly greater  satisfactions  for  their  various  desires  than 
they  could  obtain  by  direct  effort.  Why  ?  Because 
there  is  now  a  vast  increase  of  useful  products  in 


28  ELEMENTS  OF  POLITICAL  ECONOMY. 

existence.  Here  we  have  reached,  provisionally,  the 
true  explanation  of  the  gains  of  exchange.  It  is  not 
so  much  that  by  exchange  men  get  better  and  cheaper 
articles,  as  it  is  that  they  get  more  of  them.  By 
the  division  of  employments,  which  is  only  possible 
under  a  system  of  exchange ;  by  the  fact  that,  under 
free  exchange,  men  avail  themselves  of  all  the  varied 
advantages  of  Nature  and  position  ;  the  number  and 
variety  of  useful  products  created,  the  number  and 
variety  of  the  services  which  men  are  able  to  render 
to  each  other,  are  immeasurably  augmented.  More 
is  produced,  more  is  to  be  exchanged,  and  therefore 
there  are  more  satisfactions  of  all  men's  desires. 
Political  Economy,  therefore,  which  unfolds  the  rea- 
sons and  the  laws  of  exchange,  finds  its  only  field 
in  a  state  of  society.  It  is  truly  a  political,  that  is, 
a  social  science. 

In  determining  now  more  definitely  still  the  field 
of  our  science,  we  will  look  at  some  of  the  leading 
definitions  of  it  which  have  been  given  by  different 
writers.  Mr.  Senior  defines  it  "  the  science  which 
treats  of  the  nature,  the  production,  and  the  distri- 
bution of  wealth."  Mr.  McCulloch  regards  it  "  the 
science  of  the  laws  which  regulate  the  production  of 
those  material  products  which  have  exchangeable 
value,  and  which  are  either  necessary,  useful,  or 
agreeable  to  man."  Archbishop  Whately  gives  it 
the  name  of  "  catalactics,  or  the  science  of  ex- 
changes." Among  several  equivalent  definitions 
which  he  is  at  pains  to  give,  Mr.  Mill  places  first, — 
"  the  science  which  treats  of  the  production  and 
distribution  of  wealth,  so  far  as  they  depend  upon 
the  laws  of  human  nature."     The   French  writers 


FIELD  OF  THE  SCIENCE.  29 

give  definitions  somewhat  broader.     M.  Storch  says 
it  "  is  the  science  of  the  natural  laws  which  deter- 
mine the  prosperity  of  nations,  that  is  to  say,  their 
wealth  and  civilization."     M.  Sismondi  regards  "  as'\ 
the  object  of  political  economy  the  physical  welfare  j 
of  man,  so  far  as  it  can  be  the  work  of  government."   1 
And  M.  Say  defines  it  as  "  the  economy  of  society^\ 
a  science  combining  the  results  of  our  observations 
on  the  nature  and  functions  of  the  different  parts  of 
the   social  body."     And  lastly,  Mr.   Carey,  in   this 
country,  dropping  the  title  Political  Economy  as  a 
general  designation^  and  adopting  the  term  "  Social 
Science  "  in  its  stead,  defines  it  as  "  the  science  of 
the  laws  which  govern  man  in  his  efforts  to  secure 
for  himself  the  highest  individuality  and  the  greatest     < 

power  of  association  with  his  fellow-men."  I 

It  will  be  noticed  that  in  several  of  the  preceding 
definitions  the  term  wealth  is  introduced  as  a  part 
of  the  definition.  This  word  wealth  has  been  the 
bane  of  Political  Economy.  It  is  the  bog  whence 
most  of  the  mists  have  arisen  which  have  beclouded 
the  whole  subject.  From  its  indefiniteness,  and  the 
variety  of  associations  it  carries  along  with  it  in 
different  minds,  it  is  totally  unfit  for  any  scientific 
purpose  whatever.  It  is  itself  almost  impossible  to 
be  defined,  and  consequently  can  serve  no  useful 
purpose  in  a  definition  of  anything  else.  It  has  been 
much  debated,  for  example,  among  political  econo- 
mists, whether  the  term  wealth  includes  anything 
more  than  material  products,  such  as  houses,  lands, 
metals,  tools,  food ;  or  whether  the  skill  of  artisans 
and  the  services  of  professional  men  are  also  to  be 
reckoned  as  wealth.     Some  include  under  the  term 


30  ELEMENTS  OF  POLITICAL  ECONOMY. 

only  material  products ;  others,  as  Mr.  Mill,  widen 
the  signification  so  as  to  take  in  those  immaterial 
services  which  result  in  an  increase  of  material  prod- 
ucts; while  otliers  still,  with  evident  violence  to  the 
current  meaning  of  the  word,  include  under  it  all 
things,  whether  material  or  immaterial,  for  which 
something  may  be  obtained  in  exchange.  Thus  the 
meaning  of  the  word  wealth  has  never  yet  been  set- 
tled ;  and  if  Political  Economy  must  wait  until  that 
work  be  done  as  a  preliminary,  the  science  will  never 
be  satisfactorily  constructed.  It  is  simply  impossible, 
on  such  an  indefinite  word  as  this  at  the  foundation, 
to  build  up  a  complete  science  of  Political  Economy. 
Moreover  the  word  wealth  includes  the  two  distinct 
ideas  of  value  and  utility,  —  ideas  which  must  be 
kept  perfectly  distinct,  or  else  there  is  no  sound  think- 
ing and  no  sound  conclusions  within  this  field.  Men 
may  think,  and  talk,  and  write,  and  dispute  till  dooms- 
day, but  until  they  come  to  use  words  with  definite- 
ness,  and  mean  the  same  thing  by  the  same  word, 
they  reach  comparatively  few  results,  and  make  but 
little  progress.  And  it  is  just  at  this  point  that  we 
find  the  first  grand  reason  of  the  slow  advance  hith- 
erto made  by  this  science.  It  undertook  to  use  a 
word  for  scientific  purposes  which  no  amount  of 
manipulation  and  explanation  could  make  suitable 
for  that  service.  Happily  there  is  no  need  to  use  this 
word.  In  emancipating  itself  from  the  word  wealth 
as  a  technical  term.  Political  Economy  has  dropped 
a  clog,  and  its  movements  are 'now  relatively  free. 

Of  the  other  definitions  quoted,  against  which  the 
objection  just  considered  does  not  lie,  some  embrace 
too  little,  and  others  embrace  too  much.     The  only 


FIELD  OF  THE  SCIENCE.  31 

one  which  seems  to  the  present  writer  to  be  exactly- 
right,  is  the  definition  given  by  Archbishop  Whately, 
namely,  the  science  of  exchanges.  This  definition, 
or  its  precise  equivalent,  the  science  of  value,  gives  a 
perfectly  definite  field  to  Political  Economy.  Wher- 
ever value  goes  this  science  goes,  and  where  value 
stops  this  science  stops.  Political  Economy  is  the 
science  of  value,  and  of  nothing  else.  To  determine 
with  distinctness  what  value  is,  to  separate  it  from 
some  things  which  have  often  been  confounded  with 
it,  and  thus  to  lay  a  foundation  for  the  science  at 
once  satisfactory  and  complete,  will  be  the  work  of 
the  next  chapter  But  it  is  in  order  at  this  point  to 
*call  attention  to  the  second  grand  reason  of  the  slow 
advance  hitherto  made  in  this  field  of  inquiry.  Value 
is  a  relative  word.  It  is  usually  defined  as  purchas- 
ng-power,  that  is  to  say,  the  value  of  anything  is 
|ts  power  of  purchasing  other  things.  It  is  not  an 
Independent  quality>)f  one  thing,  as  hardness  is  a 
quality  of  a  stone,  but  it  is  a  quality  of  one  thing 
as  estimated  in  a  corresponding  quality  of  something 
else.  It  is  not  a  quality,  in  and  of  itself,  of  gold,  but 
a  relation  which  gold  holds  to  other  things  which 
gold  will  buy.  The  notion  of  value  is  not  conceiva- 
ble except  by  a  comparison  of  two  things,  and  what 
is  more,  of  two  things  mutually  exchanged.  Politi- 
cal Economy  therefore  is  based' upon  a 'relative  idea, 
and  has  to  do  from  beginning  to  end  with  a  relation. 
Now  in  this  there  is  an  inherent  difficulty,  and  a 
difficulty  too  which  can  never  be  obviated.  It  fies 
in  the  very  nature  of  the  subject.  Men  much  more  1 
readily  apprehend  an  absolute  idea  than  a  relative  ' 
one.     They  more  easily  follow  a  discussion  touching 


[ 


32  ELEMENTS  OF  POLITICAL  ECONOMY. 

the  independent  attributes  of  single  objects,  such  as 
length,  breadth,  thickness,  and  many  others,  than  a 
discussion  touching  value,  which  is  not  an  attribute 
of  any  one  thing,  but  a  relation  subsisting  between 
two  things.  I  am  not  aware  that  this  difficulty  has 
ever  been  remarked  on  by  any  writer,  but  I  am  at 
the  same  time  very  sure  that  it  constitutes  the  prin- 
cipal difficulty  in  this  class  of  inquiries,  and  has  been 
the  main  reason  of  the  tardy  progress  hitherto  made 
in  them.  A  careful  analysis  of  the  nature  of  value, 
and  copious  illustration  bestowed  upon  the  elements 
of  the  subject,  will  lessen  this  difficulty  as  much  as 
the  nature  of  the  case  will  allow.  To  this  then  we 
next  proceed. 


ON  VALUE.  33 


CHAPTER  JIL 

ON  VALUE. 

If  I  take  up  a  new  lead-pencil  from  my  table,  for 
the  purpose  of  examining  all  its  qualities,  I  shall 
immediately  perceive  those  which  are  visible  and 
tangible.  The  pencil  has  length,  a  cylindrical  form, 
a  black  color,  is  hard  to  the  touch,  is  composed  of 
wood  and  plumbago  in  certain  relations  to  each 
other,  and  has  the  quality,  when  sharpened  at  the 
end,  of  making  black  marks  upon  white  paper. 
Are  then  these,  and  such  as  these,  the  only  qualities 
of  the  pencil?  No.  It  has  another  quality  very 
important,  which  is  neither  visible  nor  tangible,  but 
relative.  It  has  purchasing-power.  It  had  the  power 
of  purchasing  from  me,  two  days  ago,  the  sum  of 
ioh  cents.  United  States  currency ;  and  if  I  should^ 
choose  to  take  it  back  to  the  store  where  the  ex- 
change was  made,  it  has  doubtless  the  quality  still 
of  being  able  to  purchase  again  from  the  storekeeper 
the  same  number  of  cents  which  it  first  purchased 
from  me. 

This  purchasing-power,  which  the  pencil  pos- 
sesses in  common  with  all  other  articles  which  are 
ever  bought,  sold,  or  exchanged,  is  value,  and  is  the 
subject  of  Political  Economy.  It  is  absolutely  essen- 
tial, in  order  to  engage  in  any  discussions  in  Politi- 
cal Economy  with  the  least  hope  of  sound  results, 


34  ELESIENTS  OF  POLITICAL  ECONOMY. 

to  determine  with  distinctness  the  nature  of  value, 
to  use  the  term  always  in  the  same  sense,  and  not 
to  confound  the  thing  itself  with  other  things  that 
may  be  similar.  It  is  convenient  to  regard  value  as 
a  quality  inhering  in  a  commodity  or  service.  The 
convenience  of  such  expressions  as,  "  the  pencil  has 
value,"  "  gold  has  value,"  is  so  great,  that  science 
will  not  consent  to  forego  the  advantage  of  using 
them,  even  though  they  are  not  scientifically  accu- 
rate. She  justly  prefers  to  make  her  language  intel- 
ligible and  popular,  and  then  to  explain  precisely 
what  she  means  by  it.  Strictly  speaking,  valae  is 
not  a  quality  of  any  one  thing,  but  a  relation  which 
one  thing  holds  to  another  thing.  It  is  not  a  quality 
in  and  of  itself  of  gold,  but  a  relation  which  gold 
holds  to  other  things  that  gold  will  buy.  It  is  not, 
therefore,  true,  speaking  strictly,  that  value  is  a  qual- 
ity of  gold  in  the  sense  in  which  weight  is  a  quality 
of  gold,  because  circumstances  are  easily  conceiva- 
ble, and  have  often  occurred,  under  which  gold 
would  have  no  value  at  all.  To  the  crew  of  a  boat 
abandoned  at  sea,  among  whom  the  last  biscuit  had 
been  rationed  out,  a  bag  of  gold  belonging  to  one  of 
the  men  would  not  purchase  a  biscuit  belonging  to 
another.  The  inherent  qualities  of  the  gold  are 
present.  It  is  still  hard,  and  yellow,  and  heavy. 
But  valuable  it  is  not.  It  will  not  purchase  any- 
thing. Value,  therefore,  is  not  an  inherent  and 
invariable  attribute,  but  is  the  relative  power  which 
one  thing  has  of  purchasing  other  things.  This 
power  in  any  one  thing  will  vary  according  to  time 
and  place  and  circumstances.  It  may  cease  alto- 
gether, as  in  the  case  just  supposed,  or  it  may  rise 


ON  VALUE.  35 

under  other  circumstances  to  a  very  high  degree ; 
but  whenever  it  exists,  it  exists  with  reference  to 
some  other  thing,  which  either  is,  or  is  supposed  to 
be,  exchanged  with  it.  Ten  cents  had  the  power  of 
purchasing  my  pencil,  and  my  pencil  has  the  power 
of  purchasing  ten  ceAts.  In  this  transaction  the  idea 
of  value  is  developed.  A  similar  transaction  first 
introduced  that  idea  into  the  world,  and  the  endless 
succession  and  variety  of  such  transactions  has  kept 
the  idea  in  the  world,  and  will  keep  it  here  till  the 
end  of  time.  Value,  then,  speaking  strictly,  is  not 
an  independent  quality  of  the  pencil,  any  more  than 
it  is  an  independent  quality  of  the  cents.  Both  are 
necessary  in  order  that  the  value  of  either  may  be 
conceived  of.  The  value  of  the  cents  is  estimated, 
is  measured  by  the  pencil ;  and  the  value  of  the 
pencil  is  estimated,  is  measured  by  the  cents.  In 
one  word,  value  is  al^^ys  relative,  and  never  abso- 
lute. To  say  that  anything  has  an  absolute  value 
is  a  simple  contradiction  in  terms. 

But  why  was  I  desirous  to  part  with  good  United 
States  money  for  the  sake  of  the  pencil,  and  the 
storekeeper  to  part  with  a  good  pencil  for  the 
sake  of  the  money?  The  answer  to  this  question 
will  ground  the  science  of  value  on  the  unchanging 
principles  of  human  nature.  I  experience  a  w^ant 
which  the  pencil  was  adapted  to  satisfy.  He  expe- 
rienced a  want  which  the  money  was  adapted  to 
satisfy.  But  between  my  want  and  its  satisfaction, 
both  of  which  were  personal  to  me,  there  lay  an  effort, 
to  be  made  either  by  myself  or  by  somebody  else  in 
my  behalf.  So,  between  his  want  and  its  satisfac- 
tion, both  of  which  were  personal  to  him,  there  lay 


86  ELEMENTS  OF  POLITICAL  ECONOMY. 

an  effort,  to  be  made  either  by  himself,  or  by  some- 
body else  in  his  behalf.  If  I  had  chosen  to  do  so,  I 
might  have  made  the  direct  effort  necessary  in  order 
to  supply  myself  with  a  pencil.  I  might  have  made 
the  pencil  for  myself.  It  would  indeed  have  been  a 
long  and  tedious  process,  wonld  have  required  a 
learning  of  two  or  three  trades,  a  journey  to  some 
plumbago-bed,  the  working  and  preparation  of  the 
mineral,  and  various  other  subordinate  processes ; 
still,  in  the  course  of  half  a  life-time  it  might  per- 
haps have  been  done,  and  I  might  by  direct  efforts 
have  supplied  myself  with  a  pencil  as  good  as  that 
which  I  purchased.  So,  too,  the  storekeeper,  unless 
the  laws  had  prevented  it,  might  have  procured  for 
himself  by  direct  efforts  the  metal  cents  which  I 
gave  him  in  exchange  for  the  pencil.  He  might 
have  dug  the  ores  for  himself,  refined,  alloyed,  and 
minted  them.  Had  we  chosen  respectively  to  take 
this  course,  and  each  been  able  to  satisfy  his  own 
particular  desire  by  his  own  unassisted  efforts,  the 
processes  in  either  case  would  have  had  no  relation 
to  Political  Economy.  There  would  be  in  each 
case  a  want,  an  effort,  a  satisfaction,  but  there  w^ould 
be  no  exchange.  As  a  matter  of  fact,  however,  we 
exchanged  the  efforts  which  lay  between  our  respec- 
tive desires  and  their  respective  satisfactions.  I  de- 
sired a  pencil,  he  relieved  me  of  the  effort  necessary 
to  make  it,  and  I  experienced  the  satisfaction.  He 
desired  the  cents,  I  relieved  him  of  the  effort  neces- 
sary to  procure  them,  and  he  again  experienced  the 
satisfaction.  We  each  experienced  our  own  desires, 
and  our  own  satisfactions,  but  we  exchanged  efforts. 
Precisely  in  this  exchange  of  efforts  arose  the  phe- 


ON  VALUE.  37 

nomenon  of  value.  I  parted  with  my  cents,  which 
had  cost  me  an  effort,  in  order  to  satisfy  my  desire 
for  a  pencil,  because  my  effort,  represented  in  the 
cents,  was  less  than  the  effort  it  would  cost  me  to 
create  the  pencil.  The  shopkeeper  parted  with  the 
pencil,  which  had  cost  him  an  effort,  in  order  to  sat- 
isfy his  desire  for  the  cents,  because  his  effort,  repre- 
sented in  the  pencil,  was  less  than  the  effort  which 
it  would  otherwise  cost  him  to  procure  the  cents. 
We  exchanged  efforts,  therefore,  for  our  mutual 
advantage. 

The  principles  of  human  nature,  then,  on  which 
the  laws  of  value  are  grounded,  are  these :  Men 
have  desires,  are  capable  of  making  efforts  to  meet 
these  desires,  and  experience  a  satisfaction  when 
the  desires  are  met.  These  three  are  indisputable 
and  universal  facts.  But  while  the  desire  and  the 
satisfaction  are  strictly  personal  to  one  man,  that  is 
to  say,  belong  to  him  and  cannot  be  communicated 
to  another,  it  is  not  so  with  efforts.  Efforts  are  ex- 
changeable. You  have  a  desire,  I  make  the  effort 
to  meet  it,  and  you  again  experience  the  satisfaction. 
On  the  other  hand,  I  have  a  desire,  you  make  the 
effort  to  meet  it,  and  I  again  have  the  satisfaction. 
We  exchange  efforts,  but  experience  our  own  satis- 
factions. Desires,  eiforts,  satisfactions,  constitute 
the  one  circle  of  Political  Economy,  and  value  arises 
in  every  case  from  a  comparison  of  two  correspond- 
ing efforts.  Efforts  are  naturally  irksome.  Every- 
body wishes  to  realize  as  large  a  satisfaction  as 
possible  from  a  given  effort.  If,  by  making  that 
effort  for  another,  a  larger  satisfaction  will  be  real- 
ized tha»  by  expending  it  directly  for  one's  self,  there 


38  ELEMENTS   OF  POLITICAL  ECONOMY. 

is  an  immediate  and  pressing  motive  to  make  the 
effort  for  another,  and  to  reach  the  satisfaction,  not 
directly,  but  indirectly,  that  is,  by  exchange.  A  pre- 
cisely similar  motive  actuates  that  other  person.  If 
his  given  effort  will  realize  more  for  himself  by  be- 
ing put  forth  for  the  first  man,  and  by  accepting  the 
first  man's  effort  in  return,  he  too  will  be  anxious  to 
exchange  efforts  with  the  first.  There  is  a  mutual 
advantage  in  thus  exchanging.  A  given  effort  real- 
izes better  satisfactions  for  each  of  the  parties,  and 
the  reason  for  exchanges  is  thus  seen  to  spring  from 
the  most  active  and  invariable  principles  of  human 
nature. 

Value,  then,  has  reference  to  efforts,  to  services ; 
is  measurable  in  and  exchangeable  for  these.  And 
men  find  by  experience  —  and  this  is  one  of  the 
grand  harmonies  of  society  —  that  they  gain  more 
satisfactions  for  less  efforts,  by  thus  exchanging 
efforts.  It  is  because  there  are  obstacles  to  be  sur- 
mounted in  order  that  men's  various  desires  may  be 
met ;  and  because  any  one  may  choose  what  class 
of  obstacles  he  will  devote  himself  to  surmounting, 
and  then  exchange  his  efforts  along  that  line  with 
the  efforts  of  other  men  along  their  lines ;  and  be- 
cause by  thus  doing  the  satisfactions  of  all  bear  a 
larger  and  larger  proportion  to  their  efforts,  that 
exchange  plays  so  vast  a  part  in  the  world's  affairs. 

The  exchange  of  the  cents  for  the  pencil,  and  the 
pencil  for  the  cents,  is  a  simple  case  of  value,  but  it 
is  not  the  simplest.  In  this  case  there  is  an  ex- 
change of  one  commodity  for  another  commodity, 
the  idea  of  value  is  instantly  developed,  and  we  say 
that  the  pencil  is  worth  ten  cents,  or,  what  is  exactly 


ON  VALUE.  39 

equivalent,  ten  cents  are  worth  the  pencil.  There 
are  two  things  in  every  exchange,  —  that  which  is 
parted  with  and  that  which  is  received.  Attention 
should  be  constantly  directed  to  both.  Many  errors 
in  science,  and  numberless  mistakes  in  legislation, 
have  arisen  from  not  attending  to  this  circumstance, 
as  if  it  were  the  glory  of  trade  to  sell  rather  than  to 
buy,  whereas  it  is  not  possible  to  sell  without  buy^ 
ing,  because  the  pay  must  be  taken  for  what  is  sold. 
In  every  exchange,  therefore,  of  commodity  for  com- 
modity, the  value  of  each  is  expressed  in  the  other, 
and  the  relation  between  the  two  purchasing-powers 
is  adjusted.  This  is  the  common  case.  The  trade 
of  all  past  ages,  and  the  present  commerce  of  five 
continents,  presents  us,  in  principle,  with  nothing 
different  from  this.  The  commerce  of  the  world  is 
substantially  barter,  that  is,  the  exchange  of  com- 
modities for  commodities;  and,  though  many  pur- 
chases and  sales  may  intervene,  and  money  may 
play  its  part  in  facilitating  the  exchange,  and  many 
forms  of  credit  may  come  in,  before  the  transaction 
is  finally  closed,  these  do  not  alter  in  the  slightest 
particular  either  the  notion  of  value  or  its  laws. 
Each  repeated  purchase  and  sale  presents  us  over 
and  over  again  with  the  same  phenomenon,  namely, 
the  estimated  relation  of  two  purchasing- powers. 
And  this  relation  is  value. 

The  simplest  case  of  value,  however,  will  throw 
light  upon  the  more  complex  ones,  and  will  be  found 
to  include  them.  Tw^o  farmers,  who  are  neighbors, 
find,  on  talking  over  their  respective  crops,  that  one 
has  more  hoeing  and  less  haying  this  year  than 
usual,  and  the  other  less  hoeing  and  more  haying. 


40  ELEMENTS  OF  POLITICAL  ECONOMY. 

A  says  to  B,  "  Come  over  and  help  me  hoe  in 
June,  and  I  will  go  over  and  help  you  hay  in  July." 
B  agrees.  It  is  a  mutual  advantage.  And  so,  to 
use  the  old  expression,  which  is  better  here  than 
any  scientific  terms  could  be,  they  change  works.  B 
does  a  service  for  A,  and  A  does  a  service  for  B. 
The  two  services  balance  each  other.  They  are 
mutually  exchanged  one  for  the  other;  and  in  the 
very  proposal  thus  to  exchange  them  the  notion  of 
value  is  conceived,  and  in  the  exchange  itself  value 
is  both  produced  and  measured.  B's  help  in  hoeing 
is  worth  A's  help  in  haying. 

This  exchange  of  one  service  for  another  service 
presents  the  simplest  case  cf  value ;  and  I  now  pro- 
ceed to  show  that  it  essentially  includes  all  other 
cases.  If  it  can  be  shown  that  value  is  always  and 
everywhere  the  same  thing,  that  it  is  always  and 
everywhere  the  relation  between  two  services 
EXCHANGED,  then  will  Political  Economy  be  seen 
to  possess  one  grand  characteristic  of  the  great 
sciences,  namely,  simplicity.  This  can  be  shown. 
There  are  only  three  cases  of  value  conceivable. 
1st.  When  a  service  is  exchange  for  a  service,  as 
by  the  two  farmers  already  supposed.  2d.  When 
a  service  is  exchanged  for  a  commodity,  as  when 
the  lawyer  gives  his  client  counsel  and  receives  five 
dollars  in  return.  3d.  When  a  commodity  is  ex- 
changed for  a  commodity,  which  is  the  common 
case  of  commerce.  Any  cases  of  value  which  do 
not  seem,  at  first  sight,  to  come  under  one  of  these 
three,  will  be  seen  after  all,  on  reflection,  to  come 
there.  For  instance,  if  a  man  invests  money  in  the 
national  debt,  and  buys  the  government  bonds,  it  is 


ON  VALUE.  41 

exchange  of  commodity  for  commodity.  The  bonds 
give  him  a  claim  on  the  national  property.  So  with 
a  mortgage.  So  with  any  form  of  credit.  These 
are  commodities. 

Now,  then,  what  is  really  exchanged  in  all  these 
three  cases,  are  mutual  services.  The  client,  with 
five  dollars  in  his  pocket,  is  just  as  much  in  position 
to  do  the  lawyer  a  service,  as  the  lawyer  is  in  posi- 
tion to  do  him  a  service.  The  counsel  is  serviceable 
to  the  client,  and  the  dollars  are  serviceable  to  the 
lawyer,  and  so  they  exchange.  Value  is  the  esti- 
mated relation  between  the  two.  And  just  so  when 
commodities  are  exchanged  with  each  other.  The 
hatter  serves  you  with  a  hat,  and  the  shoemaker 
with  a  pair  of  boots,  and  you  serve  them  with  six 
dollars  each ;  or  if  the  hatter  be  in  want  of  boots, 
and  the  shoemaker  of  a  hat,  they  serve  each  other 
with  their  respective  products.  In  every  case  of 
value,  therefore,  without  exception,  what  is  really 
exchanged,  whether  a  commodity  intervene  or  not, 
are  mutual  services ;  and  value  is  then  produced, 
and  only  then,  when  two  persons  are  in  position  to 
render  each  other  a  service  ;  and  the  respective  ser- 
vices being  rendered,  that  is  exchanged,  and  the 
balance  being  struck,  we  have  the  value  of  one  ex- 
pressed in  the  other. 

Do  I,  then,  obliterate  the  old  distinction  between 
services  and  commodities?  Ye£?,  I  do,  as  far  as 
the  laws  of  value  are  concerned.  I  use  the  term 
"  service  "  in  a  broad  sense,  which  includes  the  spe- 
cific sense  and  something  more.  I  mean  by  it,  the 
rendering  of  anything'  for  which  something  is  de- 
manded in  return.     People  sometimes  do  for  others 


\ 


42  ELEMENTS  OF  POLITICAL  ECONOMY. 

what  are  called  services,  out  of  sympathy,  from  be- 
nevolence, from  duty ;  but  the  characteristic  of  these 
is  that  they  are  free ;  nothing  is  demanded  in  return. 
These,  therefore,  fall  in  the  sphere  of  morals,  and 
are  outside  the  pale  of  Political  Economy.  There 
is  no  such  thing  as  proper  exchange  within  the  field 
of  morals,  and  there  is  nothing  else  but  proper  ex- 
change within  the  field  of  economy.  This  principle 
alone  marks  the  boundary-line  between  the  sciences 
referred  to.  A  service,  then,  in  the  language  of  this 
science,  and  as  the  word  will  henceforward  be  used 
in  these  pages,  is  anything  rendered  to  another  in 
view  of  a  return,  and  for  the  sake  of  a  return.  The 
man  who  furnishes  you  a  barrel  of  apples,  does  you, 
in  this  sense,  a  service  equally  with  the  physician 
who  attends  upon  your  fever;  and  you  pay  them 
both  on  precisely  the  same  principles.  You  render 
to  each  an  equivalent  service  in  return.  To  pay 
them  money  is  to  render  them  a  service,  just  as  to 
furnish  you  apples  and  medical  advice  were  a  ser- 
vice to  you.  Whether  a  commodity,  as  apples, 
intervene  or  not,  is,  as  far  as  value  is  concerned,  a 
matter  of  indifference.  The  more  specific  use  of  the 
term  "service,"  as  opposed  to  a  commodity,  is  in- 
deed convenient,  and  will,  doubtless,  continue  to  be 
used :  the  broader  sense  is  exceedingly  useful,  and, 
by  its  aid,  we  clear  up  the  whole  subject  of  value. 

This  ultimate  definition  of  value,  namely,  that  it 
is  the  relation  between  two  services  exchanged,  will 
never,  it  is  believed,  be  materially  improved.  When 
once  a  just  analysis  is  made,  it  is  made  for  all  time. 
And  this  is  the  encouragement  that  men  have  to 
labor  in  the  field  of  science.     It  is  a  great  thing  in- 


ON  VALUE.  4o 

deed  to  contribute  even  a  subordinate  truth  towards 
the  advancement  of  any  department  of  knowledge ; 
but  that  truth,  under  fuller  investigations,  may  come 
to  be  seen  in  a  different  light,  and  may  come  to 
occupy  a  different  point  from  that  in  which  it  was 
put  by  the  contributor.  But  when  a  correct  analy- 
sis is  made  of  the  fundamental  phenomenon  itself, 
with  which  any  science  has  to  do,  and  on  which  it 
is  reared,  there  is  an  end.  That  work  will  stand  just 
where  the  fortunate  master-builder  has  placed  it. 
This  analysis  of  value,  which  I  believe  to  be  satis- 
factory and  final,  is  not  mine.  The  full  credit  of  it 
is  due,  as  I  believe,  to  the  French  writer  Frederic 
Bastiat.  The  reasons  why  we  may  feel  complete 
confidence  in  it  will  appear  in  a  more  and  more 
striking  light  as  we  proceed,  and  until  we  conclude. 
Confirmations  of  it  will  be  se^  to  come  up  from 
every  part  of  the  science,  and  crown  it  correct.  In 
the  first  place,  this  definition  covers  naturally  and 
easily  all  those  anomalous  cases  of  value  which  have 
been  so  hard  to  reduce  under  any  other  general  view. 
Take  for  instance  the  case  of  the  value  of  the  dia- 
mond. The  English  school,  and  especially  Mr.  Mc- 
Culloch,  claim  that  labor  is  the  source  of  value,  and 
that  the  purchasing-power  of  everything  is  propor- 
tioned to  the  labor  which  it  has  cost.  But,  take 
care.  There  must  be  error  in  this  statement.  Value 
is  not  always  proportioned  to  the  mere  labor  the 
thing  has  cost.  Often  it  is.  Frequently  it  is  not. 
For  example,  as  I  am  strolling  along  the  sea-shore  I 
accidentally  perceive  a  splendid  diamond  among  the 
pebbles.  It  is  but  a  moment's  labor  to  appropriate 
the  prize,  but  do  I  on  that  account  sell  my  diamond 


44  ELEMENTS  OF  POLITICAL  ECONOMY. 

for  one  dollar  less  to  the  jeweller  or  the  prince  ?  No. 
I  am  now  in  position  to  do  a  great  service  to  who- 
ever wants  a  diamond.  I  demand  a  large  service 
in  return,  and  get  it.  I  say  to  the  man  who  wants 
it,  give  me  ten  thousand  dollars  for  my  prize,  and 
you  shall  have  it.  It  would  be  poor  mercantile  logic 
for  him  to  reply :  Your  labor  is  not  worth  more  than 
one  cent  a  minute,  and  it  did  not  cost  you  bat  one 
minute's  labor  to  get  that  gem,  and  certainly  one 
cent,  therefore,  is  a  fair  price  for  the  diamond.  He 
rather  reasons  in  this  way :  Can  I  by  going  myself 
to  the  diamond-bearing  regions,  or  in  any  diamond 
market  elsewhere,  procure  for  myself  so  good  a  gem 
as  this  by  a  less  sacrifice  than  ten  thousand  dollars. 
He  resolves  this  question  mentally ;  and,  if  nega- 
tively, I  am  sure  of  getting  my  price.  In  that  case 
I  am  offering  him  a  service  worth  at  least  ten  thou- 
sand dollars.  No  one  else  is  in  position  to  render 
him  the  same  service  at  so  favorable  a  rate.  If,  on 
the  other  hand,  there  be  other  diamond  dealers  offer- 
ing gems  as  good  as  mine  for  less  than  ten  thousand 
dollars,  then  I  have  pitched  my  demand  too  high  ; 
my  service  is  not  worth  that  sum,  because  there  is 
some  other  person  ready  to  render  the  same  service 
for  a  less  sum.  The  value  of  my  diamond,  there- 
fore, is  proportioned,  not  to  the  labor  which  it  has 
cost  me,  but  to  the  service  which  I  am  able  to  ren- 
der to  the  purchaser  with  it,  compared  with  the  ser- 
vice which  he  is  able  to  render  to  me.  I  take  advan- 
tage of  his  desire  for  the  diamond,  and  crowd  up  the 
price  as  near  as  I  can  to  the  point  at  which  he  will 
either  forego  the  possession  of  a  diamond  altogether, 
or  can  obtain  a  similar  one  from  some  other  party. 


ox  VALUE.  45 

He  takes  advantage  of  my  desire  for  the  money, 
and  crowds  down  the  price  as  near  as  he  can  to  the 
point  at  which  I  can  either  find  another  purchaser, 
or  should  prefer  to  retain  the  diamond  myself.  The 
comparison  and  adjustment  of  these  two,  my  ser- 
vice to  him  and  his  service  to  me,  fixes,  for  that  sale, 
the  value  of  the  diamond. 

And  here  we  must  stop  to  notice  what  an  exceed- 
ingly good  word  the  English  language  provides  us 
with,  in  this  term  service.  It  explains  perfectly  all 
anomalous,  as  well  as  all  common  cases  of  value. 
It  combines  in  its  own  proper  meaning  all  the  ele^ 
ments  which  make  up  and  which  vary  value.  First, 
it  implies  always  two  persons,  the  person  rendering 
and  the  person  receiving  the  service.  Next,  it  always 
implies  some  effort  on  the  part  of  the  person  render- 
ing, and  some  satisfaction  on  the  part  of  the  person 
receiving  the  service.  Thus  when  one  service  is 
spoken  of  there  is  always  implied  two  persons  and 
two  things,  and  the  two  things  are  the  effort  of  one 
person  and  the  satisfaction  of  another.  But  when 
two  services  are  spoken  of  as  exchanged,  as  is  always 
the  case  in  Political  Economy,  there  is  implied,  as 
before,  two  persons,  each  of  whom  makes  an  effort 
for  the  other,  each  of  whom  is  recipient  of  a  satis- 
faction which  comes  from  the  effort  of  the  other, 
and  each  of  whom  estimates  in  the  light  of  his  own 
satisfaction  that  which  is  received  as  compared  with 
that  which  is  rendered.  It  is  this  reciprocal  estima- 
tion alone  that  constitutes  value ;  and  it  is  the  excel- 
lence, I  may  almost  say  the  glory  of  the  term  ser- 
vice, that  it  gathers  up  in  its  own  signification  all 
the  elements  which  go  to  determine  value,  and  w^hich 


'^ 


46  ELEMENTS  OF  POLITICAL  ECONOMY. 

ever  vary  its  amount.  As  here  is  the  very  kernel 
and  core  of  our  science,  illustration  will  be  well 
bestowed  at  this  point.  Let  the  parties  be  A  and 
B,  in  position  to  render  each  other  a  mutual  service. 
A  has  a  desire  which  B's  effort  can  meet,  and  B  has 
a  desire  which  A's  effort  can  meet.  Up  to  the  point 
when  the  exchange  takes  place  there  are  only  four 
elements  that  play  any  part  in  the  transaction  as 
preparatory  to  it,  namely,  two  desires  and  two  efforts. 
In  the  act  of  exchange  itself  two  other  elements 
come  into  being,  namely,  two  relative  estimates,  A's 
estimate  of  B's  effort  for  him  as  compared  with  his 
own  effort  for  B,  and  B's  estimate  of  A's  effort  for 
him  as  compared  with  his  own  effort  for  A.  As  a 
result  of  the  exchange,  and  as  that  for  the  sake  of 
which  the  whole  series  took  place,  there  appear  two 
other  elements,  namely,  two  satisfactions.  Here  is 
the  whole  of  it.  Now,  then,  any  change  in  any  one 
of  the  first  four  elements  will  vary  value ;  and  there 
is  nothing  else  in  the  world  that  can  vary  it.  If  A's 
desire  for  that  which  B  is  ready  to  render  be  less- 
ened, the  other  elements  remaining  the  same,  A's 
estimate  of  B's  effort  as  compared  with  his  own  is 
lessened,  and  value  is  at  once  affected.  If  A's  desire 
be  increased,  other  things  being  equal,  his  estimate 
of  B's  service  as  compared  with  his  own  is  increased, 
and  value  is  affected.  Just  so  any  diminution  or  en- 
hancement of  B's  desire  for  that  which  A  is  ready 
to  render,  acts  at  once  upon  B's  estimate  of  A's 
effort  as  compared  with  his  own,  and  consequently 
acts  at  once  upon  value.  Again,  any  change  in 
either  effort  as  compared  with  the  other,  such  as  its 
becoming  more  or  less  onerous  than  the  other,  will 


ON  VALUE.  47 

of  course  affect  the  estimate  of  the  one  as  measured 
by  the  other,  and  of  course  also  will  vary  value. 
These  first  four  elements  then  are  not  only  the  ele- 
ments out  of  which  value  subsequently  springs,  but 
also  are  the  elements  any  change  in  any  one  of 
which,  the  others  remaining  the  same,  will  tend  to 
vary  value,  and  without  a  change  in  some  one  of 
which,  relatively  to  the  others,  value  never  will  be 
varied.  The  term  services  expresses  just  these  ele- 
ments which  play  and  vary  as  preparatory  to  the 
realization  of  value.  Value  itself  is  realized  from 
the  adjustment  of  the  fifth  and  sixth  elements,  that 
is  to  say,  from  the  equalization  of  A's  estimate  of 
B's  service  with  B's  estimate  of  A's  service.  This 
adjustment  also,  together  with  the  remaining  ele- 
ments, the  two  satisfactions,  are  all  implied  in  the 
expression  mutual  services,  or,  if  you  please,  two 
services  exchanged.  If  any  of  my  readers  object  to 
this  paragraph  as  abstract,  I  have  only  to  reply  that 
it  is  no  more  abstract  than  the  subject-matter;  and 
if  any  of  them  find  difficulty  in  the  relative  nature 
of  the  transaction  unfolded,  in  the  fact  that  the 
views  and  comparative  estimates  of  two  persons 
must  be  kept  in  mind  throughout,  I  can  only  say, 
that  this  science  starts  with  a  relation  and  has  to  do 
with  a  relation  every  step  of  the  way  to  the  end. 
This  is  the  one  intrinsic,  unavoidable  difficulty  that 
lies  at  the  threshold  of  the  science ;  and  whoever, 
by  taking  pains  at  the  outset,  familiarizes  this  diffi- 
culty to  his  thoughts,  and  thus  overmasters  it,  will 
walk  thenceforward  with  positive  pleasure  through 
the  whole  economic  domain.  And  if  there  ever  was 
a  science  grateful  for  a  word,  as  lessening  its  inhe- 


48  ELEMENTS  OF  POLITICAL  ECONOMY. 

rent  difficulties  and  helping  explain  its  phenomena, 
Political  Economy,  which  has  wandered  these  twice 
forty  years  in  the  wilderness  of  wealth,  thankfully 
accepts  in  the  term  service  its  latest  and  most  impor- 
tant gift. 

In  the  second  place,  the  definition  of  value  which 
is  here  given  expands  the  field  of  Political  Economy 
to  its  natural  limits.  Even  Adam  Smith,  and  the 
English  economists  generally,  while  defining  wealth 
as  consisting  of  material  commodities  only,  have 
experienced  a  difficulty  in  excluding  from  the  do- 
main of  the  science  certain  mere  services,  and  in 
denying  that  value  resides  in  these  services.  Some 
have  endeavored  to  avoid  the  difficulty  in  one  way 
and  some  in  another.  Some  have  stigmatized  those 
who  render  a  mere  service  to  society  as  unproduc- 
tive laborers,  and  have  gifted  with  the  title  of  pro- 
ductive laborers  all  those  who  bring  forward  some 
vendible  commodity.  John  Stuart  Mill,  as  we  have 
seen,  enlarged  his  definition  of  wealth  so  as  to  take 
in  all  those  sorts  of  mere  services  whose  action  goes 
directly  to  swell  the  volume  of  material  commodi- 
ties. It  is  conceded  then  that  value  resides  in  some 
services ;  why  not  then  in  all  services  which  are  put 
forth  for  the  sake  of  a  return  ?  Why  allow  value  to 
a  service  which  comes  to  be  embodied  in  a  commod- 
ity, and  deny  the  term  to  another  service  just  as 
necessary  to  our  comfort  that  is  not  thus  embodied  ? 
Why  class  the  brick-maker  as  a  productive  laborer, 
and  refuse  the  epithet  to  the  hod-carrier,  without 
whose  help  the  bricks  would  never  reach  their  ulti- 
mate destination  ?  The  truth  is  there  is  no  ground 
for  this  distinction ;   and  the  very  difficulty  which 


ON  VALUE.  49 

the  various  writers  have  found  in  trying  to  make  it, 
is  a  pretty  sure  proof  that  it  ought  not  to  be  made 
at  all.  By  making  its  definitions  such  that  value 
can  only  be  supposed  to  reside  in  tangible  commod- 
ities, Political  Economy  excludes  itself,  without  any 
good  reason,  from  a  large  portion  of  its  own  field. 
Let  us  see  if  there  be  any  good  reason.  For  exam- 
ple, a  man  buys  a  spelling-book  for  his  boy,  for  the 
sake  of  his  learning  to  read.  He  then  hires  a  teacher 
to  teach  him  to  read.  According  to  the  usual  defi- 
nitions the  spelling-book  has  value,  while  the  service 
of  the  teacher  has  none.  But  why  has  it  none  ?  It 
has  to  be  paid  for,  certainly,  as  much  as  the  spelling- 
book  has  to  be  paid  for?  There  are  two  separate 
exchanges ;  first,  of  money  for  the  spelling-book,  and 
second,  of  money  for  the  service.  Both  are  made 
with  the  same  object  in  view,  namely,  that  the  boy 
may  learn  ta  read.  The  want  of  a  spelling-book 
and  the  want  of  a  teacher  are  the  two  external 
obstacles  in  the  way  of  reaching  that  object;  and 
the  father  overcomes  them  both  by  similar  means, 
that  is  to  say,  by  an  exchange ;  and  there  is  no  such 
difference  in  the  two  transactions  as  will  justify  or 
even  tolerate  the  distinction  sought  to  be  made  be- 
tween them.  The  teacher  sells  his  service.  The 
shopkeeper  sells  his  book.  The  father  renders  a  ser- 
vice to  each  equivalent  to  that  received  from  each. 
Political  Economy  now  claims  jurisdiction  over  both 
transactions  alike,  and  affirms  value  as  truly  of  the 
service  as  of  the  commodity,  and  more  truly  of  the 
service  than  of  the  commodity,  inasmuch  as  it  stands 
ready  to  prove  that  so  far  as  value  resides  in  any 
commodity  it  resides  there  simply  in  virtue  of  the 


60  ELEMENTS   OF  POLITICAL  ECONOMY. 

human  services  which  have  been  concerned  in  its 
production  and  which  will  be  subserved  by  its  ex- 
change. What  is  ultimate,  therefore,  in  all  exchange, 
is  not  commodities  but  services ;  and  the  services 
which  are  bought  and  sold  in  every  department  of 
life,  the  services,  for  example,  of  the  lawyer,  the  phy- 
sician, the  clergyman,  the  teacher,  the  editor,  the 
musician,  fall  as  much  within  the  province  of  Polit- 
ical  Economy  as  the  traffic  of  commodities  in  the 
market-place.  Our  science  asserts  its  claim  of  juris- 
diction wherever  services  are  mutually  exchanged. 

A  third  advantage  of  the  definition  of  value  now 
given,  and  one  closely  connected  with  the  last,  will 
be  seen  in  the  fact  that  it  frees  the  discussion  from 
a  perplexing  error  which  has  long  infected  this  class 
of  inquiries,  namely,  that  value  is  somehow  or  other 
connected  with  matter.  This  notion  has  controlled 
the  definitions  of  wealth ;  has  led,  as  we  have  just 
seen,  to  groundless  distinctions  among  services ;  and 
has  taken  possession  of  language  so  thoroughly  that 
no  judicious  writer  will  attempt  at  this  late  day  to 
dislodge  it  from  that  strongest  of  the  citadels  of 
error.  Rather  than  disturb  the  current  nomencla- 
ture of  business  he  will  allow  such  expressions  as 
these  to  stand :  Gold  has  value,  strawberries  have 
value.  Nay,  he  will  even  use  such  expressions  him- 
self, because  they  are  short  and  intelligible.  At  the 
same  time  he  will  clearly  explain  and  endeavor  to 
make  everybody  see  that  such  expressions  are  only 
allowable  as  figures  of  speech.  To  speak  with  sci- 
entific accuracy  it  is  not  true  to  say  that  gold  has 
value,  because  there  are  circumstances  under  which 
it  has  none.     Gold  has  specific  gravity  and  other 


ON  VALUE.  51 

essential  qualities  always  and  everywhere,  but  it  has 
value  only  when  human  services  have  been  employed 
on  it  and  may  be  subserved  by  it ;  and  I  now  pro- 
ceed to  prove  and  illustrate  the  position  that  value 
does  not  reside  in  matter,  or  in  any  form  of  matter, 
but  only  in  human  services  exchanged  ;  and  that, 
therefore,  value  is  never  of  God's  creation,  but  always 
of  man's  creation.  We  shall  see  abundantly,  before 
we  finish  the  chapter,  that  utility  is  one  thing  and 
value  quite  another.  No  effort  of  men  can  add  one 
particle  to  the  existing  matter  of  the  globe,  but  it  has 
been  supposed  that  the  efforts  of  men,  by  changing 
the  form  of  existing  matter,  impart  the  quality  of 
value  to  it,  and  that  thenceforth  the  value  remains 
fixed  in  the  matter  itself.  The  efforts  of  a  woodman, 
for  example,  with  the  cooperation  of  nature,  can  trans- 
form the  stock  of  a  tree  into  wooden  bowls,  and  value 
is  now  supposed  to  reside  in  the  vendible  bowls,  and 
the  current  language  is,  that  each  bowl  has  a  value 
of  fifty  cents.  Why  has  it  a  value  of  fifty  cents  ? 
Clearly  enough,  to  reward  his  service  who  felled  the 
tree,  and  sawed  the  block,  and  then  hollowed  out  the 
bowl.  But  the  service  having  been  employed  upon 
the  matter,  and  being  embodied  in  it,  is  not  what  is 
really  sold  now  the  matter,  and  not  the  service  ?  I 
answer.  No.  What  is  really  sold  is  the  service,  and 
not  the  matter.  And  this,  w^hich  at  first  sight  might 
not  be  thought  important,  but  which  is  really  very  im- 
portant, becomes  apparent  as  soon  as  we  reflect  that 
any  changes  in  the  conditions  of  the  service  instantly 
affect  the  value.  Our  woodman  has  on  hand  a  stock, 
of  one  hundred  bowls,  which  he  offers  for  sale  at 
fifty  cents   apiece,  as  fairly  rewarding  his  personal 


52  ELEMENTS  OF  POLITICAL  ECONOMY. 

services  in  their  production.  But,  unknown  to  him, 
an  enterprising  neighbor  has  invented  a  machine 
which  enables  him  to  make  bowls  in  every  respect 
equal  to  the  others,  and  to  offer  them  at  twenty-five 
cents  apiece.  Whoever  now  wants  a  wooden  bowl 
can  have  that  service  rendered  him  for  twenty -five 
cents  return.  The  firs*t  man  finds  that  he  cannot 
sell  a  bowl  for  over  twenty-five  cents,  and  that  his 
stock  of  one  hundred  has  sunk  at  once  in  value  from 
fifty  dollars  to  twenty -five  dollars.  What  is  the 
matter  with  his  bowls  ?  The  aaoattfir  is  not  in  the 
--Kiattei,  The  matter  is  all  there,  and  the  form  of 
the  matter  is  all  there,  but  the  value  is  just  one  half 
escaped,  because  the  service  which  he  can  render  to 
a  buyer  by  a  bowl  has  been,  by  the  enterprise  of  his 
neighbor,  just  one  half  lessened.  Value  then  follows 
the  fortunes  of  services,  and  varies  as  they  vary,  just 
as  much  when  they  have  been  employed  upon  com- 
modities, as  when  they  are  independent  of  them, 
and  we  see  that  the  value  resides  in  services  com- 
pared, and  not  in  matter  at  all. 

I  now  proceed  to  indicate  the  manner  in  which 
language  came  to  be  used  in  such  a  way  as  gives 
color  to  the  notion  that  value  resides  in  the  com- 
modities rather  than  in  the  services.  An  instance 
will  bring  the  whole  subject  before  us  clearly.  In 
many  parts  of  the  United  States  delicious  wild 
strawberries  may  be  had  in  their  season  for  the 
simple  picking.  The  pastures  and  meadows  are 
open  to  every  comer,  and  the  strawberries  are  con- 
sidered to  belong,  not  to  the  owners  of  the  fields, 
but  to  any  one  who  takes  the  labor  of  picking  the 
fruit.     Let  us  suppose  that  my  family  are  fond  of 


ON  VALUE.  53 

the  berries,  and  that  no  member  of  it  likes  to  un- 
dergo the  labor  of  picking  them,  and  that  I  hire 
some  girl,  who  offers  her  services  for  the  purpose, 
to  go  to  the  fields  and  gather  some  of  the  fruit  for 
us.  When  she  returns  I  pay  her  for  her  service. 
She  does  not  conceive  of  any  value  residing  in  the 
strawberries  themselves.  Neither  do  I.  She  makes 
a  series  of  efforts  for  the  gratification  of  my  family, 
and  is  paid  for  her  efforts.  Language  recognizes 
the  true  state  of  the  case,  and  she  does  not  say  now 
that  she  sells  us  the  berries,  and  we  do  not  speak  of 
buying  the  berries  of  her.  She  thinks  only  of  her 
labor,  we  think  only  of  her  labor,  she  is  paid  only 
for  her  labor,  and  language  is  exact  in  the  premises. 
The  next  day,  as  the  girl  is  about  to  go  for  us  again, 
my  neighbor  says  to  her,  "  You  bring  me  as  many, 
and  I  will  pay  you  as  much."  The  third  day,  a 
second  neighbor  makes  a  similar  bargain  with  her, 
and  she  brings  strawberries  for  the  three  families, 
and  is  paid  in  each  case  for  her  service.  The  girl, 
on  the  fourth  day,  taking  it  for  granted  that  we  shall 
be  likely  to  want  strawberries  that  day  also,  does  not 
wait  to  be  sent,  makes  no  bargain  for  her  services 
beforehand,  but  goes  and  gathers  the  fruit.  This 
time  there  is  a  change  of  language  when  she  comes 
to  my  door.  She  now  offers  to  sell  me  strawberries. 
"  How  much  are  they  worth  ?  "  I  ask.  She  names 
probably  the  same  sum  which  she  had  before  re- 
ceived for  the  service  of  picking  the  same  quantity. 
She  could  not  materially  increase  it,  because  there 
are  doubtless  other  girls  who  are  ready  to  render  the 
service  which  she  before  rendered,  at  the  same  rate. 
But  attention  is  now  drawn  away  from  the  service 


54  ELEMENTS  OF  POLITICAL  ECONOMY. 

to  the  berries,  and  the  idea  of  value  is  attached  to 
the  berries,  and  language  adopts  the  illusion,  and 
says,  "  the  berries  are  worth  so  much."  Who  does 
not  see,  however,  that  the  transaction  is  substantially 
the  same  as  before?  Who  does  not  see  that  it  is 
only  by  a  figure  of  speech,  convenient  indeed,  but 
still  only  a  figure,  that  the  berries  are  now  said  to 
have  value  ?  Is  it  not  plain  to  reason  that  what  the 
girl  really  sells  in  the  last  case,  is  just  what  she 
really  sold  in  the  former  cases,  namely,  her  service  ? 
The  only  difference  is  that  she  retains  in  this  case 
the  proprietorship  of  her  own  service  to  a  later  stage 
of  the  transaction.  In  the  earlier  cases,  the  berries 
became  mine  as  fast  as  she  picked  them;  in  this 
case,  they  become  mine  only  after  she  has  picked 
them ;  but  this  constitutes  no  difference  in  respect 
to  that  for  which  she  is  paid.  The  value,  therefore, 
the  purchasing-power,  resides  not  in  the  berries,  but 
in  the  service ;  that  is  to  say,  in  that  which  she  ren- 
ders as  compared  with  that  she  receives ;  and  it  is 
only  a  freak  of  language  which  leads  us  to  suppose 
otherwise.  This  is  but  a  simple  instance,  but  the 
principles  of  the  instance  are  applicable  to  all  com- 
modities whatsoever.  It  is  only  mediately  and  figu- 
ratively that  commodities  can  be  said  to  have  value 
at  all ;  and  if  we  use  the  common  language,  and 
say  that  they  have  value,  we  must  always  remem- 
ber that  they  have  it  simply  and  solely  in  conse- 
quence of  the  human  services  which  have  been 
employed  upon  them,  and  which  may  be  subserved 
by  them,  as  related  to  those  other  human  services 
for  which  they  may  be  exchanged.  If  this  be  true, 
and  it  seems  to  me  certain  that  it  is  true,  it  throws 


ON  VALUE.  55 

a  flood  of  light  upon  the  whole  field  of  value.  More 
attention  must  be  given  hereafter,  in  Political  Econ- 
omy, to  persons,  and  less  to  things.  Man  and  his 
wants,  man  and  his  efforts,  become  at  once  the  chief 
topics,  while  the  material  products  on  which  efforts 
are  employed,  and  which  minister  to  wants,  sink  in 
relative  position.  It  follows  also  from  this  distinction, 
that  there  is  not  so  much  difference  as  is  commonly 
supposed,  when  a  man  works  for  others,  and  when 
he  sets  up  for  himself, —  between  a  journeyman  and 
a  master.  The  journeyman  sells  his  services,  and 
the  master  sells  nothing  more  or  other  than  his  own 
services.  The  services  of  the  master  may  not  be 
manual,  they  may  be  merely  supervisory,  or  they 
may  be  connected  with  the  use  of  his  capital ;  but 
the  finished  product,  when  it  is  ready  for  the  con- 
sumer, represents  the  aggregate  of  the  human  ser- 
vices which  have  been  employed  upon  it,  and  whoever 
sells  it,  sells  those  services,  and  its  ultimate  value  is 
determined,  as  all  other  value  is,  by  a  double  com- 
parison, the  purchaser's  comparison  of  the  service  of 
the  product  to  him  with  that  which  he  renders,  and 
the  seller's  comparison  of  the  service  he  receives  with 
that  of  the  product.  Service  for  service,  in  the  last 
analysis,  rather  than  commodity  for  commodity,  is 
the  rule  of  value  and  the  law  of  exchange. 

It  may  be  observed,  in  the  fourth  place,  that  a 
principal  merit  of  the  definition  of  value  insisted  on 
in  this  chapter,  is  the  discrimination  which  it  allows 
between  utility  and  value.  It  is  absolutely  essential 
that  these  two  ideas  be  not  confounded.  But  they 
are  confounded  in  all  the  earlier  writers  on  wealth. 
The  word  wealth  itself  inextricably  confounds  them. 


$6  ELEMENTS  OF  POLITICAL  ECONOMY. 

Whole  discussions  in  Adam  Smith  are  marred  by 
his  not  consistently  attending  to  the  distinction, 
which  he  himself  draws  in  one  place,  between 
"  value  in  use  and  value  in  exchange  : "  meaning 
by  the  former  expression  simple  utility.  Say  mixes 
up  the  two  ideas  even  more  completely  than  Adam 
Smith  does  ;  and  the  errors  of  the  two  writers  in  this 
respect  gave  rise  to  the  twentieth  chapter  of  Mr. 
Ricardo's  book,^  in  which  the  difference  between 
utility  and  value  is  pretty  clearly  unfolded.  Mr. 
McCulloch,  too,  always  insists  upon  this  difference, 
and  correctly  maintains  that  the  distinguishing  char- 
acteristic of  utility  is,  that  it  is  gratuitous ;  although 
the  theory  of  value  of  each  of  these  writers  is  too 
narrow,  unduly  restricting  the  field  of  Political  Econ- 
omy by  assuming  that  value  rigidly  inheres  in  com- 
modities only.  The  example  of  these  writers  shows 
that  the  distinction  referred  to  can  be  made  even  un- 
der their  definition  of  value,  but  it  is  not  so  easily  and 
practically  made  as  under  the  true  definition,  because 
in  the  true  definition  attention  is  inevitably  drawn  to 
two  persons,  instead  of  to  one  thing,  and  utility,  which 
is  simple  capacity  to  gratify  any  desire,  is  neatly  dis- 
criminated, even  in  the  nomenclature  itself,  from  the 
mutual  efforts  by  which  the  mutual  desires  are  met. 
The  word  service  enables  us  to  draw  the  distinction, 
and  to  hold  it  fast. 

Utility,  then,  is  the  capacity  which  any  thing  or 
any  service  has  to  gratify  any  human  desire  whatso- 
ever. Political  Economy  has  nothing  to  do  with 
the  estimation  in  which  different  desires  are  held  by 
a  philosopher  or  a  moralist.     It  is  enough  to  consti- 

1  Principles  of  Political  Economy  and  Taxation. 


ON  VALUE.  57 

tute  for  it  utility,  if  anything  will  meet  anybody's 
desire  or  serve  anybody's  purpose.  In  this  ^ense, 
which  is  the  etymological  and  only  just  sense  of  the 
word,  ardent  spirits  have  utility  just  as  wheat  has 
utility.  The  same  thing  may  have  no  utility  for 
one  man,  a  low  utility  for  another,  and  a  very  high 
utility  for  a  third ;  since  the  first  has  no  desire  for  it, 
the  second  a  feeble,  and  the  third  a  strong  desire  for' 
it.  Desires  are  personal  to  individuals.  There  is 
no  common  standard  with  which  they  may  be  com- 
pared. They  are  not  exchangeable.  Utility  is  the 
capacity  which  anything  has  of  meeting  any  one  of 
these  desires  at  any  time  or  in  any  place.  But  some 
things  have  this  capacity  in  a  high  degree  which 
are  never  exchanged,  which  are  never  bought  or  sold, 
and  which  consequently  can  have  no  value.  The 
air  we  breathe,  the  light  in  which  we  recreate  our- 
selves, the  water  we  drink  from  the  spring  or  brook, 
all  have  the  highest  utility,  but  no  value.  They 
connect  themselves  with  no  service.  We  give  noth- 
ing for  them.  They,  and  such  as  they,  are  the 
direct  gifts  of  God.  They  are  gratuitous.  Utility 
is,  indeed,  an  element  in  all  value,  since  it  is  an  ele- 
ment in  all  service  ;  but  the  value  is  proportionate 
not  to  the  utility,  but  to  the  human  services.  Let  us 
recur  to  our  illustration  of  the  strawberries.  The 
girl  brings  delicious  strawberries  to  my  door  in  sum- 
mer. Their  utility  is  great,  their  capacity  to  gratify 
my  palate  and  that  of  my  family  is  exquisite,  but 
her  service  in  picking  and  bringing  them  is  rela- 
tively little,  and  therefore  it  is  little  that  I  pay  her. 
She  cannot  charge  me  one  farthing  for  all  that  has 
been  done  for  the  fruit  in  the  wonderful  laboratory 


58  ELEMENTS  OF  POLITICAL  ECONOMY. 

of  Nature,  —  since  Nature  works  for  nothing;  she 
can  exchange  with  me  her  own  service  merely  for  an 
equivalent  service  which  I  may  render  to  her.  Her 
service  having  been  employed  upon  that  which  de- 
rives its  utility  from  Nature  only,  the  two  become,  as 
it  were,  commingled,  but  the  value  is  one  thing,  and 
the  utility  a  distinct  thing.  The  value  has  reference 
to  her  service,  and  is  measured  by  it ;  the  utility  has 
reference  to  the  gratification  of  my  family.  The  one 
has  its  birth  mainly  in  efforts,  the  other  in  desires. 
Certainly  the  efforts  would  not  be  made  were  it  not 
for  the  desires,  but  the  desires  and  their  gratification 
is  one  thing,  and  the  efforts  which  mediate  between 
them  are  another  thing.  Utility  is  ultimate :  value 
is  mediate.  Utility  is  absolute  with  reference  to  the 
individual:  value  is  always  relative.  Certainly  we 
must  believe  that  utility  and  value  are  different 
things,  when  we  see  some  things,  as  air,  possessed 
of  the  very  highest  utility  and  no  value  at  all ;  and 
other  things,  as  strawberries,  possessed  of  a  very 
high  utility  and  a  very  low  value. 

The  history  of  economy  is  full  to  a  surfeit  of  the 
theoretical  errors  and  of  the  practical  blunders  which 
have  come  from  confounding  value  with  utility  ;  and 
from  not  attending  to  the  fact  that  all  utility,  until 
some  human  service  has  been  mingled  with  it,  is 
absolutely  free.  God  is  a  Giver.  He  gives  sunlight, 
and  air,  and  water,  in  abundance.  He  gives  the 
earth,  with  all  its  materials,  and  with  all  its  powers, 
and  with  all  its  spontaneous  fruits,  gratuitously  to 
man.  At  the  very  first.  He  gave  to  man,  "  dominion 
over  the  fish  of  the  seas,  and  over  the  fowl  of  the 
air,  and  over  every  living  thing  that  moveth  on  the 


ON  VALUE.  59 

earth."  So  far  forth  as  these  gifts  minister  directly 
to  men's  wants,  there  is  utility  indeed,  but  no  value. 
But  since,  for  the  most  part,  human  services  are 
required  to  mould  these  gratuitous  materials,  to  har- 
ness these  gratuitous  powers,  to  make  these  gratui- 
tous fruits  and  animals  available  for  use,  and  since 
services  for  this  purpose  are  exchanged  among  men, 
value  springs  up  in  connection  with  these  utilities, 
but  must  not  be  confounded  with  them.  The  utili- 
ties, disengaged  from  the  service,  are  free.  God 
never  takes  pay  for  anything,  and  has  not  author- 
ized anybody  to  take  pay  in  his  behalf;  what  is  paid 
for  is  the  service  of  man,  and  not  the  bounty  of 
Nature.  Even  the  powers  of  Nature  which  men 
avail  themselves  of  by  machinery,  such  as  water, 
wind,  and  steam,  all  work  for  nothing :  water  gravi- 
tates, and  wind  blows,  and  steam  puffs,  for  nothing. 
These  all,  and  such  as  these,  help  to  create  utilities, 
but  they  create  no  value.  Value  is  in  the  service 
which  makes  the  machine,  and  in  the  service  which 
tends  it,  but  in  the  power  which  moves  it,  unless 
that  power  be  human  muscle,  there  is  no  value. 

Value  must  be  carefully  distinguished  from  Price. 
The  price  of  anything  is  its  purchasing-power  ex- 
pressed in  money ;  the  value  of  anything  is  its  pur- 
chasing-powder expressed  in  any  other  purchasing- 
power  whatever.  Price  is  a  relative  word,  but  spe- 
cific ;  value  is  a  relative  word,  but  general.  When 
we  speak  of  the  price  of  a  service,  we  mean  the 
sum  of  money  which  that  service  will  buy ;  but 
when  we  speak  of  the  value  of  a  service,  we  mean 
the  command  in  exchange  of  that  service  over  other 
services  generally.      Thus,  we  say,   "  This  coat  is 


60  ELEMENTS  OF  POLITICAL  ECONOMY. 

worth  twenty -five  dollars;"  that  is  its  price.  The 
value  of  the  same  coat  never  could  be  completely 
expressed,  because  it  would  require  a  comparison  not 
only  with  hats  and  gloves  and  boots  and  vests,  but 
with  all  other  things  which  are  ever  exposed  for  sale. 
Therefore,  for  convenience'  sake,  value  is  commonly 
reduced  to  price.  By  knowing  the  price  of  various 
things,  we  readily  compare  their  value  relatively  to 
each  other.  Thus,  when  we  know  the  price  of  the 
coat  at  25  dollars,  and  of  gloves  at  2,  of  hats  at  5, 
and  vests  at  10  dollars,  we  easily  determine  the 
value  of  the  coat  as  estimated  in  gloves,  hats,  and 
vests,  namely,  that  its  value  as  compared  with  theirs, 
is  respectively  12|-,  5,  and  2|-  times  theirs.  The  value 
of  anything  may  remain  nearly  uniform  while  its 
price  may  greatly  vary.  At  the  present  writing 
(1865),  the  prices  of  almost  all  commodities  are 
about  double  the  usual  rate,  because  the  currency 
of  the  country  is  about  one  hundred  per  cent,  de- 
preciated ;  but  the  value  of  these  commodities,  that 
is  to  say,  their  power  of  purchasing  each  other,  is 
just  about  as  it  was  before  the  depreciation  be- 
gan. All  other  commodities  have  risen  in  relation 
to  the  one  commodity,  money ;  or,  which  is  the  same 
thing,  money  has  fallen  in  purchasing-power  in  rela- 
tion to  all  other  commodities ;  and  there  is  in  conse- 
quence a  universal  rise  of  prices ;  but  it  would  be  a 
total  mistake  to  suppose  that  values  have  risen.  A 
bushel  of  corn,  now  selling  at  two  dollars,  will  bay 
no  more  labor,  or  hay,  or  cloth,  than  it  used  to  buy 
when  it  sold  for  one  dollar  a  bushel ;  because  the 
labor,  hay,  and  cloth  have  risen  in  relation  to  money 
in  the  same  proportion  as  the  corn  has ;  while  in  re- 


ON  VALUE.  61 

lation  to  each  other  no  changes  have  supervened. 
Services  and  commodities,  with  few  exceptions,  ex- 
change with  one  another  at  the  old  rates,  —  value 
is  unaltered ;  but  exchange  for  money  at  about 
double  the  old  rates,  —  prices  have  risen.  More- 
over it  is  not  possible  that  there  should  be  any  gen- 
eral rise  or  fall  of  values,  as  there  may  be  a  general 
rise  or  fall  of  prices.  A  rise  in  the  value  of  anything 
implies  a  fall  in  the  value  of  those  things  with  which 
you  compare  it ;  that  is  to  say,  if  it  will  buy  more 
of  them,  they  will  buy  less  of  it.  Its  rise  in  value  im- 
plies their  fall  in  value,  and  conversely.  Every  rise 
in  value  of  any  service  involves  a  corresponding  fall 
in  other  services;  and  every  fall  in  value  of  any 
service  involves  a  rise  in  value  of  other  services ; 
and  therefore,  a  general  rise  or  fall  of  values  is  im- 
possible. Nothing  is  more  common  than  a  rise  or 
fall  of  value  in  particular  services.  Suppose,  for 
instance,  an  improvement  in  machinery  by  which 
broadcloth  can  be  made  with  one  half  the  former 
effort,  and  that  no  change  has  been  made  in  the 
efforts  requisite  to  make  the  gloves,  hats,  and  vests 
of  our  former  example,  and  no  change  in  the  views 
of  those  who  wish  to  exchange  them.  The  coat 
will  sink  at  once  to  about  half  its  former  value,  not 
only  in  relation  to  gloves,  hats,  and  vests,  but  in  re- 
lation to  everything  which  does  not  happen  to  be 
affected  by  a  similar  depressing  cause.  It  is  cor- 
rect to  say  that  the  value  of  the  coat  has  fallen.  As 
estimated  in  gloves,  hats,  and  vests,  its  value  now  is 
only  6],  2|,  and  l^  times  theirs,  respectively.  But 
while  coats  have  fallen  in  relation  to  the  other  com- 
modities, the  other  commodities  have  risen  in  rela- 


62       ELEMENTS  OF  POLITICAL  ECONOMY. 

tion  to  coats ;  and  if  similar  improvements  should 
be  made  in  the  machinery  by  which  gloves,  hats, 
and  vests  are  made,  so  that  one  half  less  effort' will 
bring  these  also  to  market,  views  of  parties  as  before 
remaining  unchanged,  they  will  exchange  now  for 
coats  exactly  in  the  same  ratios  as  at  first,  namely, 
12|,  5,  and  2|,  respectively,  for  1.  As  soon  as  the 
improvements  affect  all  the  commodities  equally, 
value  stands  just  as  it  did  before  the  first  improve- 
ment was  made.  Views  of  the  parties  remaining 
the  same,  it  is  only  an  advantage  or  disadvantage 
affecting  some  services  and  not  others,  that  will 
vary  their  value  in  exchange  :  whatever  affects  them 
all  equally  will  have  no  effect  upon  value.  Thus,  a 
universal  rise  of  wages  in  any  country,  provided  they 
rise  in  all  departments  of  effort  equally,  will  have 
not  the  least  effect  upon  value ;  and  we  have  just 
seen  that  a  universal  rise  of  prices  at  present  ex- 
perienced in  this  country,  has  no  effect  whatever 
upon  the  general  purchasing-power  of  services  in 
exchange,  but  is  only  a  token  that  the  one  com- 
modity, money,  has  fallen  relatively  to  them. 

It  only  remains  in  this  elementary  discussion  of 
value  to  inquire  whether  there  is,  or  can  be,  any 
measure  of  value  —  any  standard,  by  a  comparison 
with  which  we  may  determine  the  general  purchas- 
ing-power of  different  services.  It  has  commonly 
been  supposed  that  there  is  such  a  measure,  and 
political  economists  have  expended  a  great  deal  of 
strength  in  endeavoring  to  discover  what  it  is.  The 
results  have  hardly  been  commensurate  with  the 
zeal  and  patience  of  the  search.  Adam  Smith 
seems  at  one  time  to  regard  labor  as  the  best  meas- 


ON  VALUE.  63 

ure  of  value,  that  is,  the  quantity  of  labor  which  any 
commodity  will  buy  as  the  best  gauge  of  its  power 
to  buy  commodities  in  general.  At  another  time  he 
seems  to  think  that  corn  is  a  better  measure  of  general 
exchange  value  than  labor.  Others  have  thought 
that  price  furnished  the  best  attainable  standard  of 
comparison ;  in  other  words,  that  the  quantity  of 
gold  or  silver  which  anything  will  purchase,  will  best 
enable  us  to  determine  the  quantity  of  all  other 
things  which  it  will  purchase.  Others  still  have 
supposed  that  the  cost  of  production  of  any  com- 
modity would  give  the  most  accurate  rule  by  which  to 
decide  the  value  of  the  commodity,  that  is,  the  degree 
of  its  command  over  purchasable  articles  generally. 
But  the  truth  is,  a  measure  of  value  in  the  sense  in 
which  it  has  been  sought  after  by  these  writers,  is 
something  impossible  to  be  realized.  It  never  would 
have  been  sought  after,  unless  value  had  been  sup- 
posed to  be  a  rigid  quality  inhering  in  commodities, 
and,  when  once  placed  in  them  by  whatever  process, 
to  be  invariable.  We  have  seen,  however,  that  value 
is  not  a  quality  inhering  in  any  one  thing,  but  is 
a  relation  subsisting  between  two  services  which 
two  persons  are  in  a  position  to  render  to  each  other; 
and  that  this  is  not  an  inflexible  relation,  but  is  vari- 
able by  any  change  in  the  views  of  the  two  persons, 
by  which  either  of  them  puts  a  different  estimate 
upon  the  service  about  to  be  rendered  as  compared 
with  the  service  about  to  be  received.  We  have 
seen  sufficiently  already,  that  there  are  four  things, 
and  only  four,  any  change  in  any  one  of  which  will 
vary  value ;  and  that  these  four  things  are  two  de- 
sires and  two  efforts,  the  two  desires  belonging  to 


64  ELEMENTS  OF  POLITICAL  ECONOMY. 

two  persons,  and  the  efforts  made  by  two  persons 
each  for  the  other.  Now  these  four  elements  are  in 
their  very  nature  so  liable  to  vary,  and  as  a  matter 
of  fact  do  so  constantly  vary,  that  no  man  who 
clearly  perceives  what  value  is,  will  waste  time  and 
ingenuity  in  searching  for  an  invariable  standard  of 
that  which  in  its  nature  is  variable  and  relative. 

But  while  no  reliable  measure  of  value  is  possible 
to  be  found,  there  are  certain  limitations  and  princi- 
ples of  much  importance  which  ought  to  be  given 
in  this  connection.  Since  the  foundation  of  value 
lies  partly  in  the  effort  made  by  the  person  serving, 
and  partly  in  the  effort  saved  to  the  person  served, 
and  since  in  every  exchange  each  of  the  parties  is 
reciprocally  serving  and  served,  the  outermost  lim- 
itations of  value  are  easily  seen.  A  and  B  will  not 
exchange  services,  unless  the  effort  which  each  ren- 
ders to  the  other  is  less  onerous  than  the  effort  which 
each  would  have  to  make  if  each  served  himself  di- 
rectly. It  costs  a  certain  effort  for  me  to  bring  water 
from  the  spring ;  I  am  willing  to  pay  a  neighbor  for 
bringing  it  for  me,  but  I  should  not  be  willing  to 
make  a  greater  effort  for  him  in  return  than  the  ef- 
fort is  to  bring  it  myself;  neither  should  I  be  willing 
to  make  an  effort  for  him  which  I  regarded  just  as 
onerous  as  the  bringing  the  water:  unless  there  is 
some  service  which  he  will  accept  less  onerous  to 
me  than  that,  I  shall  continue  to  bring  the  water  for 
myself.  On  the  other  band,  he  will  not  render  the 
service  to  me  of  bringing  the  water,  unless  it  be  less 
onerous  to  him  than  the  doing  that  for  himself  which 
I  am  ready  to  do  for  him.  This  principle,  applica- 
ble to  all  exchanges  whatsoever,  draws  on  the  one 


ON  VALUE.  65 

side  the  outermost  line,  beyond  which  value  never 
can  pass.  It  may  be  asserted  with  confidence  that 
no  man  will  ever  knowingly  make  a  greater  effort  to 
satisfy    a  desire  through    exchange,  than  the  effort  /    \ 

needful  to  satisfy  it  without  an  exchange.  More- 
over, within  this  outermost  limitation  which  is  made  ^  \c 
by  the  comparative  onerousness  of  the  respective  ef-  /'^'^ 
forts,  there  is  a  second  limitation  of  a  similar  kind. 
To  pursue  the  same  illustration,  while  I  should 
never  make  an  effort  for  another  in  return  for  his 
bringing  the  water,  greater  than  that  required  to 
bring  it  myself,  the  return  effort  may  be  very  much 
less  than  that  effort,  and  may  sink  down  to  a  point, 
below  which  I  can  get  no  one  to  bring  the  water 
for  me.  Suppose  I  estimate  the  effort  required  to 
bring  the  water  myself  as  10  ;  and  that  there  are 
several  persons  who  would  be  glad  to  do  that  service 
for  me  for  a  return  service  which  I  estimate  as  8  ; 
and  that  there  are  two  persons  who  are  willing  to 
do  it  for  something  which  I  estimate  as  6 ;  and  that 
there  is  only  one  person  who  will  do  it  for  a  return 
service  which  I  regard  as  5.  It  is  evident  that  the 
extreme  limits  of  the  value  of  that  service  to  me  are 
10  and  5.  Higher  than  10  it  cannot  go,  lower  than 
5  it  cannot  sink.  I  should  render  the  service  esti- 
mated as  8,  rather  than  forego  having  the  water 
brought  for  me  ;  but  I  shall  render  the  service  esti- 
mated as  5,  just  as  long  as  there  is  any  one  person 
who  will  make  the  exchange  with  me  on  those  terms. 
If  he  declines  the  exchange,  I  fall  back  on  one  of 
the  two  persons  in  the  class  above  him,  and  value 
rises  now  from  5  to  6.  It  will  be  steadier  at  6  than 
it  was  at  5,  because  there  are  two  persons  ready  to 


66  ELEMENTS  OF  POLITICAL  ECONOMY. 

render  the  service  at  that  rate.  If  each,  however,  in 
turn  should  give  out,  I  should  then  be  obliged  to  fall 
back  upon  the  larger  class  ready  to  serve  me  for  a 
return  service  of  8.  At  this  point  the  value  would 
be  very  steady  from  the  presence  of  numerous  com- 
petetors  anxious  to  serve  me  at  that  rate,  and  it 
could  by  no  possibility  rise  above  10.  Between  10 
and  5  the  value  may  fluctuate,  but  it  cannot  over- 
pass these  limits  in  either  direction.  Therefore  we 
may  say  that  the  maximum  value  of  any  service  in 
exchange  is  struck  at  the  point  where  the  recipient 
will  prefer  to  serve  himself,  rather  than  make  the  ex- 
change ;  and  the  minimum  value  of  any  service  in 
exchange  is  struck  at  the  point  below  which  the  re- 
cipient cannot  get  himself  served.  These  two  limits, 
it  will  be  observed,  are  found  in  the  two  elements 
which  we  have  called  efforts. 

But  there  are  also  limitations  of  value  in  the  two 
elements  which  we  have  called  desires.  In  the  fore- 
going illustration,  it  is  supposed  that  my  desire  for 
the  water  is  all  the  while  of  uniform  strength,  and 
the  desire  of  each  of  the  three  classes  willing  to  serve 
me  for  the  return  service  is  uniform  also,  though 
each  class  makes  a  different  estimate  of  the  compar- 
ative efforts.  Let  us  now  suppose  that  the  efforts 
on  either  side  remain  invariable,  but  there  is  a 
change  in  the  element  of  desire.  Any  capacity  in 
anything  to  gratify  any  desire  of  anybody  is  utility. 
For  simplicity's  sake,  let  us  look  only  to  the  one 
man  who  was  ready  to  bring  the  water  for  a  return 
service  which  I  estimated  as  5,  and  suppose  that  he 
is  the  only  man  who  will  do  me  the  service  on  any 
terms.     Let  now  the  utility  of  the  water  to  me  be 


ON  VALUE.  67 

increased,  and  let  him  know  that  fact,  all  other  ele- 
ments remaining  as  before,  and  he  can  crowd  up 
the  value  of  his  service  towards  10,  according  to  the 
intensity  of  my  desire.  Of  course  he  cannot  crowd 
it  over  10,  but  the  limit  below  that  will  now  be  de- 
termined by  the  relative  strength  of  my  desire.  On 
the  other  hand,  if  my  desire  be  as  before,  and  the 
two  efforts  as  before,  and  his  desire  for  my  return 
service  be  increased,  and  I  know  it,  and  I  the  only 
man  who  can  render  him  such  a  service,  I  can  crowd 
down  the  value  of  his  service  below  5,  according  to 
the  intensity  of  his  desire.  Of  course  I  cannot 
crowd  it  down  below  a  point,  which  we  will  call  3, 
at  which,  rather  than  continue  his  service  at  that 
rate,  he  will  forego  the  exchange  altogether.  But 
value  may  vary  between  these  limits,  10  and  3,  ac- 
cording to  the  varying  intensity  of  our  mutual  de- 
sires. If  it  should  so  happen  that  both  these  desires, 
my  desire  for  his  service  and  his  desire  for  mine, 
should  increase  simultaneously  and  proportionably, 
value  would  not  be  affected  ;  the  exchange  would  go 
on  at  the  same  rate  as  before.  Or  if  both  desires 
should  diminish  simultaneously  and  proportionably, 
value  would  not  be  affected.  The  same  is  true  of 
efforts.  If  both  efforts  suddenly  become  twice  as 
onerous,  or  twice  less  onerous,  than  before,  the  de- 
sires remaining  the  same,  the  value  of  the  two  ser- 
vices estimated  in  each  other  would  stand  just  as 
before.  Thus  we  see  that  the  natural  limits  of  value, 
and  all  the  variations  in  value,  are  to  be  sought  for 
and  will  be  found  in  the  play  and  interaction  of  the 
four  elements  out  of  which  value  itself  springs. 
We  shall  now  be  able  to  understand  clearly  what 


68  ELEMENTS  OF  POLITICAL  ECONOMY. 

is  meant  by  Market- Value  and  its  variations,  and 
also  the  action  of  Supply  and  Demand.  Market- 
Value  is  the  rate  at  which  services  of  all  sorts  are 
/exchanging  at  the  present  time  in  the  various  de- 
partments of  society.  What  determines  that  rate  ? 
What  determines  that  corn  is  now  selling  in  the 
market  for,  two  dollars  a  bushel?  Two  desires 
come  in  to  determine  it,  —  the  desire  of  people  for 
corn,  and  the  desire  of  farmers  for  money.  Two  ef- 
forts come  in  to  determine  it,  —  the  effort  of  farmers 
to  raise  and  bring  a  bushel  of  corn  to  market,  and 
the  effort  of  people  to  secure  two  dollars  in  money. 
The  presence  of  corn  in  the  market,  or  its  being 
ready  to  be  immediately  brought  there  and  oflered 
in  exchange  for  money,  constitutes  what  is  called  a 
Supply  of  corn  ;  money  offered,  or  ready  to  be  of- 
fered, in  exchange  for  corn,  constitutes  what  is  called 
a  Demand.  This  is  commercial  language,  and  is 
sufficiently  accurate,  although  it  must  be  remem- 
bered that  each  commodity  in  reality  constitutes  a 
Demand  for  the  other,  and  is  a  Supply  in  reference  to 
the  other.  But,  speaking  commercially,  the  money 
ready  to  be  offered  for  commodities  is  the  Demand, 
and  the  commodities  ready  to  be  exchanged  for 
money  are  the  Supply.  What,  then,  is  the  law  of 
market-value?  The  law  of  market-value  is  the 
equation  of  supply  and  demand:  that  is  to  say,  the 
rate  of  the  exchange  is  adjusted  when  money  enough 
is  offered  to  take  off  within  the  usual  times  the 
commodities  on  hand.  Demand  and  supply  are 
thus  equalized,  and  the  current  market-rate  is  deter- 
mined. If  demand  for  any  reason  becomes  quick- 
ened, and  the  supply  not  increased,  there  is  compe- 


ON  VALUE.  69 

tition  among  buyers  for  the  stock  in  market,  and 
market-value  tends  to  rise.  If  demand  becomes 
sluggish,  the  supply  remaining  the  same,  there  is 
competition  among  sellers  to  dispose  of  their  stock, 
and  market-value  tends  to  sink.  So  far  it  is  the 
action  on  value  of  the  element  of  desire,  which  ex- 
presses itself  through  demand.  How  far  can  this 
action  go  ?  Demand  being  increased,  supply  re- 
maining the  same,  value  rises :  how  far  does  it 
rise?  In  the  ratio  of  the  increased  demand,  say 
some  ;  if  the  demand  be  one  third  increased,  the 
value  will  be  one  third  higher.  By  no  means  is  this 
true.  The  value  may  rise  far  higher  than  that  pro- 
portion, or  it  may  not  rise  in  anything  like  that  pro- 
portion. It  depends  upon  circumstances,  and  upon 
the  nature  of  the  commodity.  We  must  remem- 
ber that  demand  not  only  acts  upon  value,  but  value 
acts  upon  demand.  As  value  rises,  the  number  of 
those  whose  means  or  inclinations  enable  them  to 
purchase  at  the  new  rate  is  constantly  diminished. 
There  are  ten  persons  who  may  wish  an  article  at 
one  dollar,  of  whom  not  over  four  will  wish  it  at 
two  dollars,  and  perhaps  only  one  at  three  dollars. 
Every  rise  in  value  then,  under  the.  influence  of  in- 
creased demand,  tends  to  cut  off  a  part  of  that  de- 
mand, that  is,  to  lessen  the  number  of  those  who 
will  purchase  at  the  increased  price ;  and  the  value 
will  rise  only  to  that  point,  whatever  it  be,  where  an 
equalization  takes  place  between  the  supply  and  de- 
mand, between  the  quantity  of  corn,  for  example, 
offered  at  the  enhanced  rates,  and  the  quantity  of 
money  in  the  hands  of  those  willing  to  exchange  it 
for  corn  at  the  enhanced  rates.     Thus  we   see  that 


70  ELEMENTS  OF  POLITICAL  ECONOMY. 

every  rise  or  fall  of  demand,  and  the  consequent 
rise  or  fall  of  value,  tends  to  check  itself.  An  in- 
creased demand  for  any  article  or  service,  other 
things  being  equal,  enhances  its  value ;  but  the  en- 
hanced value  in  turn  lessens  the  demand  by  lessen- 
ing the  number  of  those  who  will  purchase,  and  the 
new  market-rate  is  struck  at  the  point  of  equaliza- 
tion between  the  old  supply  and  the  new  demand. 
Just  so,  if  demand  is  slackened,  value  declines ;  but 
declining  value  in  turn  increases  the  demand  by 
bringing  the  article  within  the  range  of  a  larger 
number  of  purchasers,  and  the  decline  is  arrested  at 
the  point  of  equalization  between  the  new  demand 
and  the  old  supply,  and  a  new  market-rate  is  deter- 
mined. Everything  oscillates  under  the  variations 
of  demand,  but  the  point  of  stable  equilibrium,  if  I 
may  use  the  expression  of  anything  so  unstable  as 
market-value,  the  point  of  stable  equilibrium  is 
always  the  equation  of  supply  and  demand. 

In  the  preceding  paragraph  we  have  supposed 
supply  to  remain  unchanged,  and  have  followed  the 
law  of  value  through  the  variations  of  demand, 
which,  money  being  invariable,  as  is  here  supposed, 
expresses  the  element  of  desire.  Supply  expresses 
the  element  of  efforts,  and  market-value  varies  wath 
the  variations  of  supply.  We  have  seen  that  every 
rise  or  fall  of  demand  tends  to  check  itself,  and  will 
check  itself  even  without  variations  in  the  supply ; 
but  it  is  commonly  checked  at  an  earlier  point  by 
variations  in  the  supply.  A  brisk  demand  enhances 
value,  and  enhanced  value  commonly  stimulates  sup- 
ply, and  increased  supply  checks  the  rise.  A  slack 
demand  lowers  value,  and  lowered  value  commonly 


ON  VALUE.  71 

lessens  the  supply  by  the  action  of  holders  and  spec- 
ulators, —  holders  withdrawing  their  stock  for  a  bet- 
ter market,  and  speculators  buying  now  when  the 
article  is  cheap,  to  store  away  till  it  shall  be  dearer. 
Thus  rise  of  value  from  increased  demand  is  doubly 
checked ;  first,  by  restricting  the  number  of  purchas- 
ers, and  second,  by  increasing  the  supply :  the  fall 
of  value  from  slack  demand  is  doubly  checked; 
first,  by  enlarging  the  number  of  consumers  of  a 
now  cheaper  article,  and  second,  by  diminution  of 
supply  by  the  action  of  holders  and  speculators. 
This  law  of  the  equalization  of  demand  and  supply, 
thus  doubly  and  harmoniously  working,  is  perhaps 
the  most  comprehensive  and  beautiful  law  in  politi- 
cal economy.  But^we  must  note  the  action  on  value 
of  changes  in  supply  only,  demand  continuing 
steady.  If  the  supply  be  short,  and  cannot  be  in- 
creased at  all,  as  is  the  case  with  choice  antiques  and 
certain  gems  and  paintings  by  the  old  masters,  value 
may  rise  to  any  point,  and  w^ill  be  struck,  as  before, 
at  the  precise  point  of  equality  of  the  demand  then 
existing  with  the  supply  there  offered.  The  French 
government  paid,  in  1852,  615,300  francs  for  a  paint- 
ing by  Murillo,  which  had  belonged  to  Marshal 
Soult.  The  genuine  Murillos  are  comparatively 
few,  and  their  number  cannot  be  increased,  and 
their  merit  causes  a  strong  desire  to  possess  them, 
and  their  value  rises  in  consequence  of  the  limita- 
tion of  supply  to  a  point  beyond  which  no  one  pur- 
chaser can  be  found.  When  this  painting  was 
offered  in  Paris  for  sale,  many  parties  were  anxious 
to  purchase  it,  but  the  equation  of  demand  and  sup- 
ply was  reached,  and  its  value  was  determined  only 


72  ELEMENTS   OF  POLITICAL  ECONOMY. 

when  one  party  distanced  all  other  competitors 
and  offered  a  sum  greater  than  any  one  else  would 
give.  There  was  one  painting;  there  could  be  but 
one  purchaser;  value  rose  under  the  influence  of 
demand,  and  could  not  be  checked  by  increase  of 
supply ;  and  the  equation  was  complete  when  the 
demand  was  practically  restricted  to  one  party,  and 
that  the  highest  bidder.  The  same  principle  controls 
all  sales  of  this  sort. 

If  the  supply,  instead  of  being  absolutely  limited, 
can  only  be  increased  with  difficulty,  or  after  the 
lapse  of  time,  similar  but  less  extreme  results  will  be 
observed.  Suppose  pianos  are  selling  in  any  com- 
munity at  $300  each,  and  there  are  twenty  persons 
in  that  community  who  wish  a  piano  immediately, 
and  that  there  are  but  fifteen  pianos  on  hand,  and  the 
number  cannot  be  increased  for  six  months.  The 
value  will  rise  above  $300.  How  much  above  ?  To 
that  point,  whatever,  it  be,  at  which  only  fifteen  of 
the  twenty  will  be  willing  to  purchase  at  the  new 
rate.  The  equation  of  supply  and  demand  will  be 
reached  by  a  rising  value  which  cuts  off  five  com- 
petitors. This  is  the  principle,  working  only  roughly 
indeed  in  practice,  —  working  only  by  the  estimates 
and  good  judgment  of  dealers,  —  but  the  principle 
is  this.  A  better  illustration  of  this  class  of  cases  is, 
perhaps,  the  grains  and  other  products  of  the  earth. 
When  these  have  been  gathered  there  is  no  more 
home  supply  for  a  year.  Any  deficiency  in  the 
crops  will  raise  their  value,  not  at  all  in  the  ratio  of 
the  deficiency,  but  according  to  the  relations  of  the 
diminished  supply  to  a  new  demand.  It  will  de- 
pend on  the  facility  of  importation,  and  other  causes. 


ON  VALUE. 


73 


but  it  has  frequently  happened  that  an  estimated  de- 
ficiency of  crops  amounting  to  one  third  has  doubled 
and  even  quadrupled  the  usual  prices.^ 

In  the  only  remaining,  and  far  more  numerous 
class  of  cases,  in  which  the  supply  of  commodities 
and  services  can  be  readily  and  indefinitely  increased, 
every  rise  and  fall  of  value  is  speedily  checked  by 
the  action  of  supply ;  and  the  comprehensive  and 
harmonious  law  already  referred  to  keeps  value  in 
this  class  of  cases  comparatively  steady. 

The  general  theory  of  value  has  now  been  given. 
While  we  shall  find  no  case  of  value,  or  its  varia- 
tions, which  this  theory  does  not  cover  and  explain, 
we  shall  find  particular  principles  which  act  in  cer- 
tain cases  upon  demand  and  supply,  and  thereby  act 
upon  value.  We  have  now  seen  what  value  is ;  how 
it  arises ;  the  elements  which  alone  can  vary  it ;  and 
the  universal  law  which  limits  it. 

1  Tooke's  History  of  Prices.     Quoted  by  J.  S.  Mill. 


74  ELEMENTS  OF  POLITICAL  ECONOMY. 


CHAPTER   IV. 

ON  EXCHANGE. 

The  strength  and  safety  of  our  conclusions  in 
Political  Economy  are  derived  from  the  simplicity 
and  certainty  of  the  forces  at  work.  No  man  has 
ever  denied  the  great  facts  that  lie  at  the  basis  of 
exchange.  That  men  are  possessed  of  desires,  that 
efforts  are  necessary  in  order  to  meet  these,  and  that 
satisfactions  are  the  result,  are  propositions  univer- 
sally admitted.  From  these  simple  truths  spring  all 
the  laws  of  our  science,  and  all  the  economical  har- 
monies of  society.  Let  me  remind  my  readers  that, 
while  the  desires  and  satisfactions  are  experienced 
by  one  and  the  same  person,  and  from  their  very 
nature  cannot  be  communicated  to  another,  this  is 
not  at  all  true  of  efforts.  Efforts  are  exchangeable. 
One  man  may  and  does  put  forth  the  effort  neces- 
sary for  the  satisfaction  of  another  man's  desire. 
But  since  the  effort  is  not  for  himself  but  for  another, 
and  since  to  put  forth  efforts"is  not  naturally  agreea- 
ble to  man,  and  never  becomes  so,  except  in  con- 
nection with  the  satisfaction  to  which  they  minister, 
he  will  demand  for  his  effort  some  corresponding 
effort  made  for  him.  This  is  a  simple  fact.  No 
man  will  work  for  you  for  nothing.  If  you  think  he 
ought  to,  there  is  no  law  against  your  trying  to  in- 
duce him  to  do  so. 


ON  EXCHANGE.  75 

How  now  does  it  happen  that  society  is  one  vast 
hive  of  buyers  and  sellers,  every  man  bringing  some- 
thing to  the  market  and  carrying  something  off?  We 
speak  of  the  commercial  classes,  but  all  classes  are 
commercial.  Everybody  exchanges.  You  do  some- 
thing for  me,  and  I  will  do  something  for  you,  is  the 
fundamental  law  of  society.  From  this  results  the 
division  of  employments,  and  all  the  various  profes- 
sions. Every  man  brings  his  own  product  and  ex- 
changes with  society  as  best  he  may.  The  farmer 
brings  his  produce  —  and  exchanges.  The  mechanic 
brings  the  product  of  his  skilled  labor  —  and  ex- 
changes. The  laborer  brings  his  strength,  and  the 
teacher  his  knowledge,  and  they  are  ready  to  do  ser- 
vice —  for  a  consideration.  The  merchant,  the  phy- 
sician, the  lawyer,  the  clergyman,  the  editor,  the 
lecturer,  the  singer,  the  actor,  and  so  on  to  the  end 
of  the  list,  are  all  in  position  to  render  services  to 
society,  and  justly  expect  to  receive  an  equivalent 
service  in  return.  Indeed,  when  we  look  out  upon 
society,  the  most  striking  thing  we  observe  about  it 
is,  that  these  exchanges  are  going  on,  in  a  thousand 
directions  at  once,  determining  all  employment  and 
professions,  reaching  everywhere  and  permeating 
everything,  and  all  this  the  more  rapidly  and  per- 
fectly as  knowledge  and  civilization  advance.  Since, 
therefore,  as  a  matter  of  fact,  men  do  constantly  put 
forth  onerous  efforts  to  satisfy  other  men's  desires, 
in  order  to  receive  back  from  them  the  results  of  cor- 
responding efforts  in  return  ;  since  this  mutual  ex- 
change of  services  is  everywhere  present  in  society, 
not  in  the  market-places  only,  but  in  every  depart- 
ment of  life,  there  must  be  in  this  exchange  some 


76  ELEMENTS  OF  POLITICAL  ECONOMY. 

great  gain.  We  now  inquire  particularly  what  this 
gain  is.  What  is  the  motive  that  leads  men  univer- 
sally to  exchange  ? 

The  answer  to  these  questions  will  bring  us  to  the 
gratifying  conclusion  that  the  laws  of  exchange  are 
based  on  nothing  iess  solid  than  the  will  of  God. 
The  desires  of  men  are  not  only  various  in  kind  and 
indefinite  in  degree,  but  also  tend  to  increase  in 
variety  and  extent  by  the  progress  of  knowledge  and 
freedom.  To  the  gratification  of  almost  all  these 
desires,  however,  there  are  obstacles  interposed,  some 
of  which  are  physical  and  some  moral ;  and  these 
obstacles  are  so  great  in  all  directions,  that  the  pow- 
ers of  the  individual  man  are  utterly  incompetent  to 
surmount  them.  They  mock  at  his  weakness,  and 
throw  him  back  upon  his  destitution.  Without 
association  with  his  fellow-men,  there  is  no  creature 
so  helpless,  so  unable  to  reach  his  true  end,  as  is 
man  ;  and  therefore  it  is,  that  the  impulse  to  associ- 
ation is  one  of  the  strongest  of  our  natural  impulses. 
Men  come  together,  as  it  were  by  instinct,  into  soci- 
ety ;  and,  associating  themselves  together  in  a  soci- 
ety, it  is  very  soon  discovered,  not  only  that  there 
are  various  desires  in  the  different  members  of  the 
community  which  are  now  readily  met  by  coopera- 
tion and  mutual  exchange,  but  also  that  there  are 
very  different  powers  in  the  different  individuals  in 
relation  to  those  obstacles  which  are  to  be  sur- 
mounted. There  is  a  vast  diversity  in  natural  gifts. 
One  man  has  physical  strength,  with  no  mechanical 
ingenuity ;  another  combines  with  a  feeble  body  a 
wonderful  knack  for  contrivance ;  a  third  has  a 
philosophical  turn,  liking  to  examine  into  the  laws 


ON  EXCHANGE.  77 

of  nature ;  and  a  fourth  has  a  bent  and  genius  for 
traffic.  Now,  then,  Nature  speaks  in  this  diversity 
of  gifts  in  as  loud  a  voice  as  she  can  utter,  in  favor 
of  such  a  degree  of  association  and  exchange  as  shall 
allow  a  free  development  of  these  varying  capacities, 
while  they  work  upon  the  obstacles  to  the  gratifica- 
tion of  men's  wants  which  are  appropriately  oppo- 
site to  them.  Mr.  Carey  is  right  in  his  principle  that 
the  degree  of  individuality  depends  on  the  degree  of 
association,  each  advancing  hand  in  hand  with  the 
other;  but  he  seems  to  me  to  be  wrong  while  he 
lacks  confidence  in  the  natural  forces  at  work  tending 
to  the  highest  degree  of  association  and  consequently 
to  the  highest  degree  of  individuality.  There  is  no 
social  force  stronger  than  interest,  and  interest  is 
driving  society  continually  to  exchange,  and  to  a 
wider  and  wider  application  of  the  principles  of  ex- 
change, that  is  to  say,  to  a  higher  and  higher  degree 
of  association,  which  allows  of  course  a  continually 
freer  development  of  individuality.  When  interest 
fails  as  a  motive  power,  at  least  in  this  department, 
it  is  vain  to  appeal  or  to  trust  to  an  inferior  and  fac- 
titious motor. 

It  is  interest  that  leads  men  to  exchange.  It  is 
because  a  given  effort  put  forth  for  another,  in  view 
of  a  return,  realizes  more  of  satisfaction  than  when 
put  forth  directly  for  one's  self,  that  exchange  ever 
takes  place.     Why  does  it  realize  more  ?     Because 

THERE  is  diversity  OF  ADVANTAGE  BETWEEN  DIF- 
FERENT   MEN     AND    BETWEEN    DIFFERENT    NATIONS,    IN 

DIFFERENT  RESPECTS.  All  cxchangc  dcpcnds  on 
diversity  of  relative  advantage;  and  diversity  of  rela- 
tive advantage  exists  by  God's  appointment  among 


78  ELEIMENTS  OF  POLITICAL  ECONOMY. 

individual  men,  and  among  the  nations.  Reserving 
this  national  diversity  for  a  later  discussion,  it  is 
very  clear  that  a  diversity  of  advantage  in  different 
things  displays  itself  as  between  the  individuals  of 
every  community  large  and  small.  There  is  no 
village  in  which  one  man  has  not  an  advantage  over 
his  neighbors  in  the  making  of  coats,  another  in  the 
shoeing  of  horses,  another  in  the  curing  diseases, 
another  in  the  keeping  a  school ;  while  each  of  those 
neighbors  may  have  an  advantage  over  each  of  these 
in  some  other  art  or  avocation.  This  diversity  of 
advantage  in  various  directions  depends,  in  every 
advanced  state  of  society,  partly  upon  diversity  of 
original  gifts,  partly  upon  concentration  of  personal 
effort  upon  the  one  set  of  obstacles  that  lie  in  the 
path  of  a  single  branch  of  business,  and  partly  upon 
the  use,  and  familiarity  in  the  use,  of  the  gratuitous 
forces  of  nature  which  lend  their  aid  towards  over- 
coming these  obstacles.  As  the  result  of  one  or  two 
or  all  of  these,  one  man  comes  to  have  a  legitimate 
advantage  over  others  in  his  own  branch  of  business, 
whatever  it  is ;  and  the  others  come  to  have  a  legiti- 
mate advantage  over  him  in  their  own  branches  of 
business,  whatever  they  are;  and  if  he  has  desires 
which  their  efforts  can  satisfy,  and  they  desires  which 
his  efforts  can  satisfy,  nothing  more  is  necessary  to 
a  profitable  exchange  between  them  than  this  rela- 
tive advantage  at  different  points.  The  tailor  and 
blacksmith  can  profitably  exchange  their  respective 
efforts  just  as  soon  as  each  has  a  relative  superiority 
to  the  other  in  his  own  trade,  provided  of  course  each 
has  a  desire  for  the  product  of  the  other ;  and  the 
greater  the  relative  superiority  of  each  to  the  other, 


ON  EXCHANGE.  79 

the  more  profitable  is  the  exchange  to  both.  This  is 
a  point  of  considerable  consequence,  and  will  repay 
some  pains  in  illustration.  If  the  blacksmith  can 
shoe  horses  only  a  little  better  than  the  tailor  could 
shoe  them,  and  the  tailor  make  coats  only  a  little 
better  than  the  blacksmith  could  make  them,  there 
will  be  only  a  slight  advantage  in  their  mutually  ex- 
changing efforts.  For  the  sake  of  definiteness,  let  us 
say,  that  the  tailor's  capacity  in  making  coats  is  6, 
and  his  capacity  in  shoeing  horses  is  5  ;  and  the 
blacksmith's  capacity  in  shoeing  horses  is  6,  and  his 
capacity  in  making  coats  is  5.  Each  has  a  relative 
superiority  to  the  other  of  1,  and  if  they  exchange, 
there  is  an  advantage  of  2  to  be  divided  between 
them.  Now  let  us  suppose  that  each,  by  exclusive 
devotion  to  his  own  trade,  by  developing  his  latent 
skill  and  ingenuity,  and  by  availing  himself  of  all  the 
forces  of  nature  at  his  command,  comes  to  have  a 
capacity  in  his  own  business  of  15,  his  capacity  in 
the  other  business  remaining  as  before  at  5.  Each 
now  has  a  relative  superiority  to  the  other  of  10,  and 
when  they  exchange  there  is  an  advantage  of  20  to 
be  divided  between  them.  The  motive  to  an  ex- 
change, and  the  gain  of  an  exchange,  are  ten  times 
greater  than  they  were  before.  Therefore  we  lay 
down  the  principle,  as  universally  applicable  to  all 
exchanges,  that  the  greater  the  relative  superiority 
at  different  points,  the  more  profitable  do  exchanges 
become.  If  this  principle  is  just,  and  I  flatter  myself 
that  it  will  be  found  to  be  just,  it  follows,  that  every 
man  who  has  anything  to  exchange,  is  directly  inter- 
ested in  the  success  of  his  fellow-citizens,  that  every 
trade  finds  its  advantage  in  the  increasing  develop- 


80  ELEMENTS  OF  POLITICAL  ECONOMY. 

ment  of  other  trades,  and  that  all  discoveries  and 
inventions  by  which  Nature  is  made  to  pay  tribute 
to  any  art  is,  restrictions  apart,  so  much  clear  gain 
to  the  world  at  large.  In  the  light  of  sound  princi- 
ples, what  has  been  sometimes  called  the  jealousy  of 
trade  is  simply  silly. 

All  exchange,  then,  depends  on  difference  of  rela- 
tive advantage,  because  without  some  difference  of 
relative  advantage,  each  party  could  serve  himself 
directly  just  as  well  as  he  could  be  served  by  the 
other  party,  and  there  would  be  no  motive  at  all  for 
an  exchange.  As  soon  as  there  is  any  difference  of 
relative  advantage,  there  begins  to  be  a  motive  for  an 
exchange,  and  a  gain  as  the  result;  and  the  motive 
and  the  gain  become  stronger  and  greater  as  the  dif- 
ference increases  ;  so  that  the  gains  of  exchange  are 
the  greatest  in  that  state  of  society  in  which  the 
freest  opportunity  is  allowed  to  every  individual  to 
employ  his  peculiar  powers  in  work  for  which  he  is 
best  fitted,  in  which  desires  are  so  various  and  em- 
ployments so  diversified  as  to  give  a  chance  for  all 
kinds  of  efforts,  and  in  which  men  avail  themselves 
to  the  utmost  of  those  natural  advantages  and  gra- 
tuitous powers  which  lie  open  to  their  disposal. 
Freedom,  association,  and  invention,  are  the  three 
things  which  make  exchanges  as  profitable  as  they 
can  become,  and  which  will  carry  society,  so  far  as 
exchanges  can  do  it,  to  the  highest  pitch  of  prosper- 
ity. Of  these  by  far  the  most  important  is  freedom, 
because,  where  freedom  is  conceded,  association  and 
invention  follow  in  time  bylaws  of  natural  sequence. 
By  freedom  is  mpant  the  right  of  every  man  to  em- 
ploy his  own  efforts  for  the  gratification  of  his  own 


ON  EXCHANGE.  81 

wants,  either  directly  or  through  exchange.  Each 
man's  right  of  freedom  is  limited  of  course  by  every 
other  man's  right  of  freedom  which  he  is  not  at  lib- 
erty to  infringe ;  and  also,  in  certain  respects,  by  what 
is  called  the  general  good,  of  which  the  judge  must 
be  the  government  under  which  he  lives.  Under 
these  limitations,  which  limit  in  common  all  other 
rights,  the  right  of  exchange  is  just  as  much  of  a 
right  as  the  right  of  breathing.  It  stands  on  the 
same  unassailable  ground.  Every  man  has  a  nat- 
ural, self  evident,  and  inalienable  right  to  put  forth 
efforts  for  his  own  well-being ;  and  whenever  two 
men  find  that  by  exchanging  efforts  with  each  other, 
they  can  better  promote  their  own  happiness,  they 
have  an  indisputable  right,  subject  only  to  the  above 
limitations,  to  exchange ;  and  it  is  a  high-handed  in- 
fringement of  natural  rights,  a  blow  aimed  at  the 
life  and  source  of  property,  when  any  authority 
whatever  interferes  to  restrict  or  prohibit  the  free- 
dom of  exchange,  except  that  act  be  justified  by  a 
solid  proof  that  other  private  or  public  rights  which 
are  as  well  based  as  the  right  of  exchange  are  in- 
fringed thereby. 

Happily,  since  governments  have  become  more 
enlightened  than  formerly,  they  perceive  for  the  most 
part  that  they  have  no  right  to  interfere  with  this  nat- 
ural right  of  their  people,  and  also,  that,  by  interfer- 
ing with  it,  they  would  do  them  an  incalculable  in- 
jury. The  only  motive  to  a  mutual  exchange  of 
services,  is  always  and  everywhere  the  mutual  benefit 
of  the  parties.  After  every  fair  exchange,  each  party 
is  richer  than  before,  has  more  satisfactions,  otherwise 
there  would  be  no  exchange.     I  esteem  the  service 


82       ELEMENTS  OF  POLITICAL  ECONOMY. 

I  receive  more  highly  than  the  service  I  render,  oth- 
erwise I  should  not  render  it.  The  man  to  whom  I 
render  it  esteems  that  service  more  highly  than  the 
service  he  renders  to  me.  We  are  both  gainers. 
And  since  almost  everybody  in  every  community 
has  something  to  exchange, —  either  service  or  com- 
modity, and  nobody  exchanges  except  in  view  of  a 
gain,  it  is  clear  that  free  exchange  benefits  every- 
body, and  harms  nobody.  Moreover,  under  a  system 
of  free  exchange,  every  man  is  allowed,  under  the 
stimulus  of  self  interest,  to  follow  the  bent  of  his 
own  mind,  to  work  away  at  those  obstacles  to  the 
gratification  of  human  desires  which  he  feels  him- 
self best  able  to  overcome,  and  to  avail  himself  of 
all  those  helps  in  his  work,  of  which  Nature  offers  to 
him  a  full  store.  Under  these  circumstances,  obsta- 
cles give  way  in  all  directions  :  the  amount  of  mate- 
rial products  produced  and  ofTered  for  exchange  is 
vastly  augmented;  the  number  and  variety  and 
excellence  of  the  services  proffered  is  indefinitely 
increased ;  the  diversified  and  rapidly  increasing  de- 
sires in  such  a  community  are  readily  met  by  ex- 
change ;  all  peculiar  facilities  are  taken  advantage  of, 
and  the  difference  of  relative  advantage  becomes 
great  in  all  directions,  and  a  new  day  of  industrial 
and  commercial  prosperity  is  ushered  in.  Under 
freedom  all  men  have  the  greatest  possible  motive 
to  produce,  because  they  can  dispose  of  their  efforts 
to  the  best  advantage.  They  can  purchase  with 
these  efforts  what  they  will,  and  when  they  will,  and 
where  they  will.  Thus  freedom  leads  to  extended 
association,  and,  speedily  also,  to  the  invention  of 
machinery  and  all  labor-saving  appliances.     There- 


ON  EXCHANGE.  83 

fore,  since  free  exchange  indefinitely  multiplies,  in 
number  and  variety,  the  services  which  men  may 
render  to  each  other ;  since,  by  means  of  it,  men's 
satisfactions  bear  a  larger  and  larger  proportion  to 
their  efforts ;  and  since  the  only  possible  motive 
to  an  exchange  is  a  mutual  benefit  of  the  parties, 
no  reason  can  be  given,  no  good  reason  ever  has 
been  given,  why  exchanges  should  not  be  the  freest 
possible. 

After  long  centuries  of  meddlesome  and  vexatious 
interference  with  the  freedom  of  industry  and  the 
rights  of  exchange,  by  limiting  the  number  of  ap- 
prentices to  each  artisan,  by  dictating  what  should 
and  what  should  not  be  manufactured  or  grown,  by 
attempting  to  determine  what  should  and  what 
should  not  be  imported  and  exported,  and  by  arbi- 
trary burdens  on  certain  classes,  and  arbitrary  privi- 
leges granted  to  others,  the  more  enlightened  nations 
of  the  world  have  come  at  length  to  perceive  that 
w,ealth  and  power  and  progress  are  dependent  on 
free  exchange,  at  least  within  their  own  boundaries. 
Common  sense  reigns  now,  for  the  most  part,  in  this 
thing,  within  the  limits  of  the  individual  nations. 
When  Bonaparte  brought  half  of  Western  Europe 
under  French  dominion,  the  previously  existing  cus- 
tom-houses and  toll  barriers  of  the  interior  fell  as  by 
a  stroke,  and  free  trade  became  the  rule  between 
French,  Dutch,  Germans,  Italians,  and  Spaniards, — 
all  who  were  subject  to  his  sway.  But  when  his 
vast  empire  was  dissolved  into  its  original  independ- 
ent kingdoms,  up  shot  the  custom-houses  again, 
around  all  the  petty  frontiers,  and  each   State  was 


84  ELEMENTS   OF  POLITICAL   ECONOMY. 

busy  to  reimpose  on  itself  the  fetters  which  his 
powerful  hand  had  broken.^  Just  as  if  the  bene- 
fits of  exchange  depended  on  the  accident  that  the 
parties  to  it  are  subjects  or  citizens  of  the  same  gov- 
ernment ! 

Opposed  to  free  exchange  are  monopolies.  A 
monopoly  is  a  legal  restriction  imposed  by  the  gov- 
ernment upon  the  sale  of  certain  services  or  commodi- 
ties. This  restriction  is  ostensibly  laid  for  the  bene- 
fit of  certain  persons  or  classes,  and  limits  of  course 
the  competition  to  which  they  would  otherwise  be 
subject  in  their  business,  and  tends  therefore  arti- 
ficially to  raise  the  value  of  that  which  the  privi- 
leged few  offer  for  sale.  If  the  view  be  limited  to 
these  persons  alone,  monopolies  would  certainly 
seem  to  be  advantageous,  but  what  of  the  purcha- 
sers and  consumers  of  their  wares  ?  They  all  are 
obliged  to  pay  a  higher  price  for  what,  were  it  not 
for  the  monopoly,  they  could  obtain  at  a  cheaper 
rate,  since  the  only  object  in  laying  the  restriction,  is 
to  enhance  the  price  for  the  benefit  of  those  possess- 
ing the  privilege.  Monopolies,  therefore,  infringe  the 
right  of  exchange,  are  unjust  and  odious  in  their 
nature,  and  are  in  practice  abominable.  Nearly  all 
governments  have  been  chargeable,  at  times,  with 
successful  attempts  to  make  things  thus  artificially 
dear  to  the  mass  of  the  people.  Queen  Elizabeth 
called  the  power  of  granting  patents  of  monopoly  to 
her  favorites  "  the  fairest  flower  of  her  garden."  To- 
wards the  close  of  her  reign,  her  abuse  of  this  power 
had  reached  an  intolerable  height,  and  some  of  the 
most  necessary  articles   of  life,  such  as  salt,  iron, 

1  Senior.    Page  177. 


ON  EXCHANGE.  85 

calf-skins,  vinegar,  lead,  paper,  and  many  others, 
were  in  the  hands  of  patentees,  and  could  only  be 
procured  at  exorbitant  prices.  In  1601,  the  House 
of  Commons  met  in  so  angry  and  menacing  a  mood, 
in  consequence  of  this  abuse,  that  Elizabeth  was 
obliged  to  promise  at  least,  that  the  monopolies  com- 
plained of  should  be  abolished.  Up  to  1834,  tea 
was  a  close  monopoly  in  England,  in  the  hands  of 
the  East  India  Company.  To  this  day  tobacco  is  a 
government  monopoly  in  France.  Salt  and  opium 
have  been,  and  for  aught  I  know  still  are,  monop- 
olies in  British  India.  For  governments  to  confer 
a  power  of  this  sort  on  an  individual,  a  company, 
or  any  set  of  persons  so  few  as  to  enable  them 
to  combine,  is  to  give  them  a  power  to  levy  any 
amount  of  taxation  on  the  public,  for  their  own 
especial  benefit,  which  will  not  compel  the  public  to 
forego  the  use  of  the  monopolized  article.  Monop- 
lists,  however,  do  not  find  it  for  their  interest  to 
crowd  up  the  price  beyond  the  reach  of  the  mass  of 
the  ordinary  consumers,  especially  if  they  can  com- 
mand a  full  supply,  because  their  aggregate  income 
would  be  lessened  by  the  falling  off  of  buyers  from 
the  highest  price.  They  adjust  the  price  at  that 
point  at  which  they  suppose  they  will  realize  the 
largest  aggregate  gains ;  a  price  which  is  still  con- 
siderably above  what  it  would  be  under  free  ex- 
change ;  otherwise  the  monopoly  would  be  of  no 
benefit  to  them. 

A  second  form  of  monopoly  is  that  in  which  gov- 
ernments by  prohibitory  duties  exclude  foreign  com- 
petition in  certain  articles,  leaving  the  domestic  deal- 
ers  open   only  to  home  competition.      One  of  two 


86  ELEMENTS   OF  POLITICAL  ECONOMY. 

things  is  sure  to  follow  upon  such  exclusion.  It 
sometimes  happens  the  hope  of  extra  gains  from 
dealing  in  an  article  whose  foreign  supply  is  thus 
prohibited,  seduces  capital  and  labor  from  other  prof- 
itable channels  and  concentrates  them  upon  this  busi- 
ness; and  the  home  competition,  thus  artificially 
stimulated,  becomes  feverish  and  intense,  and  the 
whole  business  is  overdone,  and  they  in  whose  behalf 
the  prohibitory  duty  was  laid,  have  reason  to  pray  to 
be  delivered  from  their  friends.  Their  profits  for  a 
time  sink  below  the  current  rate  from  the  eagerness 
of  others  to  share  in  their  expected  gains ;  the  weaker 
houses  are  ruined,  and  an  element  of  distrust  and 
unsteadiness  is  introduced  into  the  whole  business. 
Only  the  stancher  firms  weather  the  depression 
consequent  upon  overdoing,  and  they  will  now  con- 
trol the  market  for  a  time  at  a  monopoly  price.  But 
their  prosperity  has  been  purchased  at  too  dear  a 
rate ;  the  losses  of  home  competitors,  and  of  those 
who  would  otherwise  have  been  foreign  competi- 
tors, and  of  those  who  would  have  exchanged  with 
those  foreign  competitors,  but  whose  market  is 
also  cut  off*  by  the  duty,  overbalance  many  fold  these 
factitious  and  precarious  gains.  This  series  of  re- 
sults has  several  times  been  witnessed  in  this  country 
under  the  stimulus  of  high  protective  duties,  as,  for 
instance,  in  the  iron  business  after  the  tariff  of  1842. 
More  commonly,  however,  competition  is  less  active 
after  the  foreign  competitors  have  been  thrust  off*; 
those  who  are  in  fair  possession  of  the  home  field 
control  the  markets  at  a  monopoly  price.  Relieved  in 
great  measure  from  the  stimulus  of  competition,  the 
manufacturers  and  dealers  are  less  on  the  alert  for 


ON  EXCHANGE.  87 

improvements  and  inventions,  they  are  less  attentive 
and  compliant  to  their  customers,  and  the  consumers 
are  obliged,  not  only  to  pay  a  tax  levied  for  the  ben- 
efit of  the  monopolists,  but  also  an  additional  tax 
on  account  of  their  want  of  enterprise  and  spirit. 
At  this  present  writing,  there  is  in  this  country  a  vir- 
tually prohibitory  duty  on  foreign  paper,  and  the 
few  paper-makers  are  not  only  growing  immensely 
rich  out  of  their  monopoly,  but  are  able  so  to  com- 
bine and  influence  the  action  of  Congress,  that  a 
very  popular  and  widespread  combination  among 
paper  users  to  induce  Congress  to  lower  the  duty,  is 
likely  to  founder  on  the  single  opposition  of  the 
paper-makers.  A  similar  monopoly  is  enjoyed  by 
the  manufacturers  of  carpets.  This  form  of  injustice 
cannot  abide  a  fair  and  full  discussion.  It  is  bound 
to  disappear  with  other  abuses  of  the  past. 

Very  different  in  character  is  the  third  form  of 
monopoly,  that  involved  in  the  granting  of  patent- 
rights  and  copyrights.  That  the  originator  of  an 
improved  process  should  enjoy  for  a  limited  time  the 
sole  right  to  employ  and  to  sell  his  improvement,  is  a 
very  proper  way  to  compensate  him  for  the  thought, 
the  pains,  the  expense,  involved  in  his  invention. 
This  mode  has  the  merit  of  graduating  the  compen- 
sation according  to  the  real  benefits  of  the  invention. 
The  same  is  true  of  copyrights.  Society  does  well 
in  protecting  by  law  inventors  and  thinkers  in  the 
sole  use  of  their  respective  productions  for  a  limited 
time.  Otherwise  men  would  have  less  motive  to 
think  and  to  invent;  since  in  that  case  only  the 
public  spirited  and  the  rich  would  or  could  devote 
themselves  to    an    important    branch  of  the   public 


88       ELEMENTS  OF  POLITICAL  ECONOMY. 

progress.  A  patent  or  copyright  is  merely  a  return 
service  which  society  renders  for  a  service  received. 
It  violates  no  man's  right  of  property,  as  an  ordinary 
monopoly  does,  but  is  a  provision  to  protect  a  right 
of  property.  In  the  United  States  a  patent  right  ex- 
tends for  fourteen  years,  and  may  be  in  certain  cases 
extended  further  by  the  Commissioner  of  Patents, 
or  by  act  of  Congress.  A  copyright  extends  for 
twenty-eight  years,  and  may  be  renewed  by  the 
author,  his  widow,  or  children,  for  fourteen  years 
longer. 


ON  PRODUCTION.  89 


CHAPTER   V. 

ON  PRODUCTION. 

While  it  is  impossible  to  make  discussions  in 
Political  Economy  amusing,  it  is  also  impossible 
intelligently  to  conduct  them  without  constantly 
coming  to  conclusions  which  are  most  cheering. 
We  shall  find  a  gratifying  law  underlying  the  oper- 
ations of  production,  which  demonstrates  that  God 
designed  man  to  be  a  producer,  and  to  produce  un- 
der conditions  of  constantly  increasing  advantage. 
The  world  with  its  forces,  and  man  with  his  mo- 
tives, are  so  admirably  constructed,  that  these  condi- 
tions of  increasing  advantage  cannot  fail,  under 
freedom,  to  redound  to  the  benefit  of  the  masses  of 
men.  We  will  first  determine  what  production  is, 
and  then  the  cheering  law  that  underlies  it. 

Every  man  who  puts  forth  an  effort  to  satisfy  the 
desire  of  another,  with  the  expectation  of  a  return, 
is,  in  the  language  of  Political  Economy,  a  Pro- 
ducer. To  produce  is  to  render  a  service  for  an 
equivalent.  A  Product  is  a  service  rendered.  The 
hod-carrier  is  as  much  a  producer  as  the  man  who 
makes  the  bricks.  Unluckily,  Adam  Smith,  who  is 
sometimes  called  the  father  of  this  science,  used 
these  terms  in  a  restricted  sense,  and  thereby  almost 
unfitted  them  to  do  their  proper  work.  He  confined 
production  to  the  occasioning  of  changes  in  material 


aO  ELEMENTS  OF  POLITICAL  ECONOMY. 

objects.  He  gifted  with  the  title  of  producer  the 
farmer,  the  mechanic,  the  miner,  the  hunter,  and 
fisherman,  because  they  bring  to  the  market  a  ma- 
terial commodity ;  and  refused  the  honor  of  the  term 
to  those  who  render  simple  services,  however  essen- 
tial. This  is  wrong.  It  proceeds  from  an  inadequate 
analysis  of  value.  That  which  is  produced,  that  with 
which  we  have  to  do,  is  not  matter  but  value.  He  who 
creates  value  is  the  producer.  But  we  have  seen  that 
value  is  not  an  attribute  of  matter,  but  of  services  ex- 
changed. The  service  may  be  employed  upon  matter, 
may  be  embodied  in  it,  but  what  is  really  sold  is  not 
the  matter,  but  the  service  ;  and  services  are  all  the 
time  being  sold,  as  those  of  the  singer,  the  teacher, 
the  clergyman,  which  have  no  connection  whatever 
with  matter.  These  services  have  purchasing-power, 
these  persons  create  value,  and  therefore,  they  are 
producers.  Certainly,  in  an  inventory  of  all  values, 
a  large  portion  would  be  found  connected  with  ma- 
terial objects,  but  by  no  means  the  whole.  Our  lan- 
guage must  be  broad  enough  to  cover  all  the  cases. 
Therefore,  Production  is  the  rendering  of  any  service 
for  which  something  is  demanded  in  return. 

Now,  then,  as  to  the  beneficent  law  that  underlies 
it.  Production  is  effort.  But  efforts  are  irksome. 
Is  there,  then,  no  way  to  lessen  efforts,  to  make  them 
less  onerous,  and,  at  the  same  time,  more  produc- 
tive ?  Yes,  thank  God,  there  is!  We  may  bring  to 
our  aid  the  gratuitous  help  of  Nature  !  The  world  is 
full  of  powers  which  we  may  employ  to  facilitate 
our  work.  For  example,  at  first  people  ground  their 
grain  by  hand ;  and  it  was  a  weary,  weary  task  to 
sit  cramped  at  the  mill  all  day,  and  turn,  and  turn. 


ON  PRODUCTION.  91 

and  turn.^  The  effort  was  great,  and  the  result  was 
small.  At  length  it  occurred  to  somebody  that  the 
weight  of  water  would  turn  a  wheel,  and  that  the 
wheel  might  turn  the  mill-stones.  Once  thought  of, 
the  water-wheel  was  soon  an  actual  fact.  Instead 
of  human  strength.  Nature  works  now,  and  what  is 
better,  w^orks  for  nothing!  Man's  service  is  still 
needed,  he  feeds  the  hopper,  tends  the  bags,  but  he 
does  not  ache  so  bad !  Nor  is  this  all.  One  day's 
labor  is  now  vastly  more  productive.  More  grain  is 
ground,  bread  comes  easier  to  the  poor,,  and  the 
wheel  which  free  water  turns  blesses  its  millions 
with  a  cheapened  product ! 

Let  us  take  another  illustration.  The  old  hand- 
loom  was  the  only  means  antiquity  knew  of  for  pro- 
curing clothing.  The  shuttle  was  thrown  by  human 
muscle.  Every  thread  cost  a  throw.  This  work 
was  mostly  done  by  women.  The  word  wife  comes 
from  the  word  to  weave.  The  wife,  then,  was  pri- 
marily the  weaver.  While  the  slave  woman  sat  on 
the  ground,  and  turned  the  handle  of  the  mill  to 
grind  the  grain,  the  wife  was  exalted  to  the  dignity 
of  the  loom,  and  w^orked  away  at  the  monotonous 
task,  thread  by  thread,  thread  by  thread.  Doubtless 
the  hand-loom  was  a  great  improvement  on  the 
earlier  processes,  and  was  itself  gradually  improved 
as  the  centuries  went  by,  each  improvement  being 
the  substitution  either  of  a  gratuitous  force  of  Na- 
ture for  an  irksome  human  effort,  or  an  easier  pro- 
cess of  art  for  a  more  laborious  one.  Every  step  of 
improvement  was  a  lessening  of  obstacles  with  refer- 
ence to   a  given  satisfaction.     All   the  way  up  to 

1  Exod.  xi.  5 ;  Isa.  xlvii.  2. 


92  ELEMENTS   OF  POLITICAL  ECONOMY. 

our  present  admirable  machinery  —  the  power-loom, 
which  weaves,  as  if  by  magic,  while  a  child  can 
tend  it  —  every  step  has  marked  a  lessening  of 
efforts  relatively  to  utilities.  The  utility,  the  satis- 
faction, the  yard  of  cloth,  has  cost  less  and  less  of 
human  effort,  not  only  to  the  producer,  but,  through 
exchange,  to  everybody.  Accidental  causes  in  this 
country  have  interrupted  this  progress  for  a  little,  at 
least  in  the  case  of  cottons,  but  it  will  go  on  again 
in  the  good  time  coming.  And  this  progress,  thus 
briefly  illustrated  in  the  two  cases  of  flour  and 
cloth,  has  been  going  on,  and  is  constantly  going 
on,  in  all  directions ;  more  strikingly,  perhaps,  in 
the  production  of  material  commodities,  in  which 
the  powers  of  Nature  may  be  indefinitely  applied  by 
machinery,  but  at  the  same  time  there  are  no  ser- 
vices of  any  kind  which  are  not  facilitated  in  some 
degree  by  the  progress  of  knowledge  and  experi- 
ence ;  and  the  benefits  of  this  increasing  advantage 
come  home,  through  exchanges,  to  everybody  ;  and, 
consequently,  the  satisfactions  of  all  bear  a  larger 
p.nd  larger  proportion  to  their  efforts.        * 

This,  then,  is  the  underlying  and  benevolent  law 
of  production,  that  God  has  placed  freely  at  men's 
disposal  such  materials  and  forces  in  Nature,  that, 
availing  themselves  skilfully  of  these,  onerous  efforts 
bear  a  less  and  less  proportion  to  realized  utilities. 
Men  have  a  strong  motive  to  substitute,  whenever 
they  can,  force  for  muscle,  machinery  for  labor.  The 
farmer  who  used  to  cut  every  spire  of  grass  with  a 
hand-swung  scythe,  then  rake  it  up  with  a  hand- 
drawn  rake,  and  then  pitch  it  into  the  loft  with  a 
handfork,  now  mows  and  rakes  and  pitches  with  a 


ON  PRODUCTION.  93 

machine.  And  it  is  a  beautiful  consequence  of  this 
law,  that  all  improvements  in  machinery,  all  inven- 
tions, all  substitution  of  Nature's  forces  for  human 
labor,  soon  become  the  common  property  of  mankind. 
Patent  rights  speedily  expire  by  their  own  limitation, 
secret,  processes  are  sure  to  become  known,  and  the 
competition  of  the  different  men  who,  under  a  system 
of  freedom,  will  be  sure  to  use  these  gratuitous  helps, 
will  compel  each  of  them  to  sell  their  product  at  a 
rate  graduated  only  by  the  actual  human  service 
rendered  ;  so  that,  the  liberal  gifts  of  Nature,  though 
seemingly  monopolized  at  first  by  ingenious  men, 
are  not  long  intercepted  in  their  descent  towards  the 
masses  of  mankind.  An  invention  of  great  merit 
even  at  first  does  not  benefit  the  patentee  alone ;  as 
a  patentee,  his  interest  leads  him  to  lower  the  price 
of  his  product,  to  bring  it  within  the  reach  of  a 
wider  circle  of  consumers ;  and  so  soon  as  the  patent 
has  expired,  the  benefit  has  at  once  a  wider  reach. 
The  steam-engine,  for  example,  has  long  been  com- 
mon property.  There  are,  indeed,  certain  features 
of  the  more  perfect  engines  still  restricted  in  their 
manufacture  by  the  rights  of  individuals,  and  this 
will  always  be  so  while  invention  continues  busy, 
but  the  perpetual  tendency  in  all  inventions  is  from 
individual  property  towards  a  common  right.  And 
it  is  here  in  place  to  remark,  that  the  application  of 
machinery  to  all  departments  of  production,  and  the 
introduction  of  improved  processes  of  every  name, 
can  hardly  in  the  first  instance  be  prejudicial  to  any, 
and  are  sure  ultimately  to  be  beneficial  to  all. 

What  is  the  effect  on  values   of  these  processes 
now  made  easier  in  all  directions  ?     Clearly,  since 


94  ELEMENTS  OF  POLITICAL  ECONOMY. 

value  is  nothing  but  the  relation  between  two  ser- 
vices exchanged,  no  effect  at  all  is  produced  on  val- 
ues, if  the  improvements  have  gone  on  equally  in  all 
directions.  Everything  exchanges  just  as  before.  If 
the  improvements  have  not  gone  on  equally,  then 
the  value,  that  is,  the  purchasing  power,  of  those 
products  is  diminished  in  whose  production  the  im- 
provements have  been  relatively  greater.  As  the 
service  has  now  diminished,  the  value,  other  things 
being  equal,  has  diminished  along  with  it.  For  such 
a  service  less  can  be  demanded  in  return.  The 
utility  of  the  product,  on  the  other  hand,  that  is, 
its  capacity  to  gratify  desire,  remains  as  before.  A 
less  effort  produces  the  same  utility.  The  portion  of 
effort  thus  set  free,  however,  is  not  probably  idle.  It 
will  be  still  put  forth  to  create  a  larger  number  of 
products  of  the  same  kind,  each  one  of  which  indeed 
has  less  purchasing  power  than  before,  but  the  aggre- 
gate value  of  which  is  much  greater  than  before. 
For  example,  when  machinery  is  employed  in  the 
making  of  gloves,  which  before  were  cut  and  stitched 
by  hand,  the  value  of  a  pair  of  gloves,  estimated  in 
anything  whose  production  has  not  been  altered  by 
a  similar  improvement,  will  infallibly  decline  ;  but 
the  aggregate  value  of  all  the  gloves  made  in  the 
establishment  will  be  greater  than  before,  because 
otherwise  there  would  have  been  no  motive  to  intro- 
duce the  machinery.  Does,  then,  the  machine  cre- 
ate value,  contrary  to  the  doctrine  in  the  chapter  on 
value  ?  Not  strictly.  The  machine  creates  utilities, 
since  each  pair  of  the  now  increased  number  of 
gloves  has  the  same  utility  as  a  pair  of  the  former, 
fewer  number ;  and  the  maker  is  able  to  render  a 


ON  PRODUCTION.  95 

service  to  a  greater  number  of  persons  than  before ; 
and  it  is  true,  that,  for  a  time,  especially  if  the  pro- 
cess be  not  yet  generally  applied  in  glove-making, 
before  value  has  a  chance  to  adjust  itself  to  the  new 
state  of  things,  he  will  realize  extra  gains ;  he  will 
obtain,  in  part,  the  old  price  for  his  product,  and  it 
would  seem,  in  this  case,  as  if  the  machine  created 
value.  Nevertheless,  it  is  only  a  transitory  state  of 
things.  Just  as  soon  as  machines  come  to  be  gen- 
erally employed  in  the  business,  value  adjusts  itself, 
through  competition,  to  the  real  human  service  ren- 
dered, and  the  extra  gains  of  the  first  operators  are 
cut  off.  The  gain  of  the  reduction  has  now  become 
permanent  to  all  consumers  of  gloves.  It  is  this 
interval  between  the  old  price  and  the  new  which 
gives  to  producers  the  margin  for  their  enterprise, 
and  a  sharp  spur  to  invent  and  adopt  improvements. 
The  improvements  once  become  general,  the  gain 
redounds  to  the  whole  community.  The  value  then 
of  all  services  which  have  been  facilitated  by  im- 
proved processes,  is  constantly  being  lessened  rela- 
tively to  services  not  equally  facilitated  ;  and  here 
we  gain  the  first  glimpse  of  a  truth,  which  will 
afterwards  appear  in  the  clearest  light,  namely,  that 
the  value  of  commodities  tends  to  decline  as  com- 
pared with  human  labor,  and  therefore,  that  there  is 
inwrought  into  the  nature  of  things  a  tendency 
towards  the  elevation  of  the  masses  of  men  in  a 
scale  of  comforts. 

A  leading  proposition  of  production  is  the  follow- 
ing :  —  Production  may  go  on  indefinitely  in  all  direc- 
tions without  ever  a  fear  of  reaching  a  general  glut 
of  products.     This  proposition  was  first  fully  devel- 


96  ELEMENTS  OF  POLITICAL  ECONOMY. 

oped  by  Say,  in  the  fifteenth  chapter  of  his  well- 
known  treatise  on  "  Political  Economy,"  and  the  proof 
of  it,  and  some  of  the  consequences  of  it,  are  well 
worthy  of  our  attention.  I  shall  put  the  proof  of  it 
in  this  form :  the  desires  of  men  which  the  efforts  of 
other  men  can  satisfy,  are  unlimited  in  number  and 
indefinite  in  degree;  and  therefore,  mutual  efforts 
can  continue  to  be  put  forth  in  exchange,  until 
these  unlimited  and  indefinite  desires  of  all  men  are 
all  met — a  goal  which  never  can.be  reached.  This 
proposition  demolishes  at  a  stroke  the  fallacy  which 
pervades  Dr.  Chalmer's  book  on  "  Political  Economy," 
namely,  that  the  universal  market  is  limited,  and 
therefore,  were  it  not  for  the  unproductive  consump- 
tion of  the  rich  and  luxurious,  and  the  equally  un- 
productive consumption  of  wars,  there  would  soon 
be  a  general  glut,  and  production  must  cease  for  the 
lack  of  a  vent  for  its  products.  What  constitutes  a 
market  for  anything  ?  This,  that  somebody  desires 
the  service  thus  offered,  and  is  willing  to  render  a 
return  service  acceptable  to  the  offerer.  Only  two 
things  can  limit  the  universal  market,  first,  a  lack 
of  desires,  and  secondly,  a  lack  of  return  services. 
But  there  can  be  no  lack  of  desires  at  any  time,  and 
there  will  be  the  greatest  plenty  of  return  services 
where  production  is  most  busy  and  most  universal. 
Therefore,  again,  no  general  glut  of  products,  is  pos- 
sible to  occur.  A  truth  which  we  have  already  seen 
in  another  connection,  reappears  here  as  a  conse- 
quence of  this  proposition,  and  will  reappear  again 
and  again,  namely,  that  all  persons  are  interested 
commercially,  as  well  as  morally,  in  the  prosperity  of 
other  persons,  and  each  nation  which  has  anything 


ON  PRODUCTION.  97 

to  exchange,  is  directly  interested  in  the  prosperity 
of  all  other  nations ;  because  the  more  production 
everywhere,  the  better  market  everywhere.  A  mar- 
ket for  products  is  made  by  products  in  market. 

But  while  no  such  thing  as  a  general  glut  of  prod- 
ucts ever  did,  or  ever  can  occui*,  a  glut  in  respect  to 
certain  services  is  very  common.  Through  want  of 
foresight,  or  miscalculation,  particular  services  are 
offered  in  too  great  abundance,  or  of  a  kind  not 
adapted  to  the  demand,  and  in  respect  to  these  the 
market  is  truly  said  to  be  glutted.  This  frequently 
happens  with  editions  of  books;  more  copies  are 
printed  than  can  be  sold  at  remunerative  prices. 
Also  when  fashion  changes,  the  goods  which  were 
fashionable,  but  are  so  no  longer,  are  apt  to  be  in 
excess  of  the  demand.  The  only  precaution  that 
can  be  taken  to  avoid  losses  of  this  character,  is  the 
cultivation  of  foresight,  by  studying  as  accurately 
as  possible  the  nature  of  human  desires,  and  the 
changes  that  have  been  observed  to  take  place  in 
them.  This  constitutes  mercantile  sagacity;  and 
the  most  successful  producers  in  all  departments  are 
those  who  best  develop  this  sagacity,  who  adapt 
their  services  to  the  existing  and  coming  demand, 
who,  to  excellence  in  the  substance  of  their  services, 
add  taste  and  attractiveness  to  their  form,  who  tend 
rather  to  lead  the  fashions  for  the  many  than  fol- 
low in  their  wake.  The  field  of  production  is  like 
the  billowy  and  heaving  sea :  to  navigate  most  suc- 
cessfully requires  foresight,  a  wise  courage,  a  power 
of  adaptation  to  varying  circumstances,  skill  to  veer 
and  tack  when  the  wind  changes,  and  a  will  to  scud 
before  a  favoring  breeze  with  all  sails  set.  Produc- 
7 


98  ELEMENTS  OF  POLITICAL  ECONOMY. 

tion,  as  a  general  rule,  is  no  dead  level  of  monoto- 
nous exertion ;  since  its  sphere  is  life  with  its  wants, 
man  with  his  desires;  and  there  is  scope  for  the 
development  of  ingenious  mind  in  almost  all  of  its 
departments.  Since  all  exchange  is  due  to  the 
diversity  of  relative  advantage,  whoever  develops 
his  powers  of  observation,  of  application,  of  adap- 
tation, to  a  higher  point,  and  avails  himself  more 
skilfully  of  all  peculiar  facilities,  will  reap  a  larger 
share  of  the  harvest  of  exchange. 

The  immense  increase  of  production,  and  the  su- 
perior perfection  of  products  consequent  upon  what 
he  calls  the  Division  of  Labor,  was  first  pointed  out 
by  Adam  Smith.  The  chapter  in  which  this  author 
treats  of  the  division  of  labor,  has  always  been  the 
most  famous,  and  is  still  one  of  the  most  interesting 
in  the  "  Wealth  of  Nations."  We  have  already  seen 
how  exchange  is  stimulated  and  made  profitable  by 
the  diversity  of  employments,  and  by  the  applica- 
tion of  all  peculiar  gifts  to  the  corresponding  obsta- 
cles which  lie  in  the  path  of  production :  this  is  the 
more  general  truth  of  which  Adam  Smith's  prin- 
ciple of  the  division  of  labor  is  a  specific  part.  He 
means  by  this  term  the  dividing  up  of  a  process  or 
employment  into  particular  parts,  so  that  each  per- 
son employed  can  devote  himself  wholly  to  one 
section  of  the  process.  The  proposition  is,  that  by 
means  of  the  division  of  labor,  the  processes  of  pro- 
duction are  vastly  facilitated.  He  cites,  as  an  illus- 
tration, the  manufacture  of  pins.  One  man  draws 
out  the  wire,  another  straightens  it,  a  third  cuts  it, 
a  fourth  sharpens  the  points,  a  fifth  grinds  it  at  the 
top  for  receiving  the  head.     The  making  the  heads 


ON  PRODUCTION.  99 

consists  of  two  or  three  distinct  operations,  each 
confided  to  a  single  person.  The  remaining  proc- 
esses are  similarly  divided  up,  and  the  result  is, 
according  to  Dr.  Smith,  that  in  a  single  establish- 
ment, employing  only  ten  persons,  48,000  pins  are 
made  in  a  day,  while  if  each  man  went  through  all 
the  processes  himself,  he  could  hardly  make  twenty 
pins  a  day,  or  two  hundred  for  the  whole  establish- 
ment. Perhaps  a  more  striking  illustration  of  the 
division  of  labor  may  be  found  in  the  art  of  watch- 
making. According  to  evidence  brought  before  a 
committee  of  the  British  House  of  Commons,  there 
are  one  hundred  and  two  distinct  branches  of  this 
art,  to  each  of  which  a  boy  may  be  put  apprentice ; 
and  when  his  apprenticeship  is  expired,  he  is  unable, 
without  subsequent  instruction,  to  work  at  any  other 
branch.  The  watch-finisher  is  the  only  person,  out 
of  the  one  hundred  and  two,  who  is  able  to  work  in 
any  other  department  than  his  own.  The  causes 
of  increased  efficiency  imparted  to  production  by 
the  division  of  labor  are  reduced  by  Dr.  Smith  to 
three :  — 

1.  The  improved  dexterity,  corporeal  and  intel- 
lectual, acquired  by  the  repetition  of  one  simple 
operation. 

2.  The  saving  of  the  time  which  is  commonly 
lost  in  passing  from  one  species  of  work  to  another, 
and  in  the  change  of  place,  position,  and  tools. 

3.  The  invention  of  a  great  number  of  machines 
which  facilitate  and  abridge  labor  in  all  its  depart- 
ments. Because  the  simple  task  which  complete 
division  of  labor  gives  to  each  operator  is  precisely 
what  machinery  may  most  easily  be  made  to  per- 


100  ELESIENTS  OF  POLITICAL  ECONOMY. 

form,  and  what  the  operator,  if  intelligent,  will  be 
most  likely  to  devise  machinery  for.  Add  to  these 
advantages  of  the  division  of  labor  these  other :  — 

4.  The  saving  of  the  waste  of  material,  which  is 
unavoidable  when  a  person  learns  an  art,  but  which 
is  much  less  when  he  learns  one  process,  than  all  the 
processes. 

5.  The  more  economical  distribution  of  labor  by 
classing  the  operatives  according  to  their  strength, 
skill,  and  experience.  The  easier  parts  may  be  per- 
formed by  women  and  by  children,  w^hose  labor  is 
less  expensive  ;  the  ruder  parts  by  ruder  hands ;  and 
only  the  more  difficult  processes  by  the  most  skilful 
workmen,  who  must  be  highly  paid.  Next  to  the 
first,  this  advantage  is  the  most  important. 

6.  There  is  a  saving  in  tools.  The  various  imple- 
ments, being  now  in  constant  use,  yield  a  better 
return  for  their  original  cost;  and  therefore  their 
owners  can  afford  to  have  them  of  a  better  quality, 
and  this,  too,  facilitates  production. 

7.  It  brings  the  producers  and  consumers  into 
more  intimate  and  safe  relations.  The  division  of 
labor  between  the  wholesale  and  the  retail  trade  is 
of  great  advantage.  The  retailers  know  their  local 
markets,  and  supply  them  without  loss  or  waste  from 
the  wholesale  reservoirs.  The  wholesale  reservoirs 
neatly  control  the  various  streams  of  production, 
according  as  demand  is  slackened  or  intensified. 
Thus,  for  example,  a  large  city  is  daily  supplied 
with  fresh  meat,  without  the  loss,  perhaps,  of  a  hun- 
dred weight. 

There  are  some  disadvantages  resulting  from  this 
division  of  labor :  — 


ON  PRODUCTION.  101 

1.  The  work  becomes  in  some  departments  mon- 
otonous and  irksome,  while  some  variety  of  occu- 
pation would  afford  relief  by  employing  different 
muscles,  or  different  faculties  of  the  mind. 

2.  There  is  some  tendency  to  dwarf  the  mental 
and  corporeal  powers,  through  exclusive  attention  to 
one  part  only  of  a  complicated  process. 

3.  When  this  part  has  been  learned,  and  long 
made  the  means  of  a  livelihood,  a  person  has  less 
power  to  adapt  himself  to  change  of  circumstances, 
and  becomes  too  much  dependent  on  the  continu- 
ance of  the  business  in  that  form. 

The  degree  to  which  the  division  of  labor  can  be 
carried,  depends  in  part  upon  the  extent  of  the  mar- 
ket, and  in  part  upon  the  nature  of  the  employment. 
To  recur  to  Dr.  Smith's  illustration  of  the  pins :  if 
the  market  would  only  have  received  24,000  pins 
a  day  from  that  establishment,  instead  of  48,000, 
the  division  of  labor  could  not  have  been  carried  to 
the  same  extent,  because  if  it  had  been,  the  men 
would  be  idle  one  half  the  time.  In  that  case,  some 
of  the  men  would  be  dismissed,  and  some  of  the 
separate  processes  be  combined,  and  production 
would  be  less  efficient  from  the  limitation  of  the 
market.  ( Production,  therefore,  is  most  profitable 
when  the  market  is  broad  enough  to  allow  a  full 
division  of  labor,  and  complete  employment  to  all 
the  operatives ;  and,  the  market  being  presupposed, 
is  more  likely  to  be  profitable  in  large  establishments 
than  in  small ;  because,  (1)  the  division  of  labor  can 
be  carried  to  a  fuller  extent ;  (2)  more  perfect  ma- 
chinery can  be  afforded;  (3)  relatively  less  superinten- 
dence is  required ;  and  (4)  the  scraps  and  ends  of  a 


102  ELEMENTS  OF  POLITICAL  ECONOMY. 

large  business  are  frequently  of  sufficient  importance 
to  justify  one  or  more  subordinate  branches  of  busi- 
ness in  connection  with  the  main  business.  For 
example,  a  large  saw-mill  may  profitably  furnish 
lath  as  well  as  lumber,  since  the  refuse  boards  and 
slabs  may  go  to  lath.  A  wholesale  butchering  estab- 
lishment of  neat  cattle  might  profitably  have,  in  con- 
nection with  the  sale  of  meat,  a  tannery  to  dispose 
of  the  hides,  a  comb  manufactory -to  dispose  of  the 
horns,  a  glue  manufactory  to  dispose  of  the  feet,  a 
stall  for  the  hair,  which  is  useful  in  plastering,  while 
the  offal  might  be  chemically  disposed  of  in  fer- 
tilizers. 

The  nature  of  the  employment  also  limits  the 
degree  to  which  the  division  of  labor  may  be  car- 
ried. Agriculture,  for  instance,  allows  less  of  this 
division  than  most  other  departments  of  production, 
because  its  various  operations  cannot,  from  the 
nature  of  the  case,  become  simultaneous.  When 
the  sowing  is  once  done,  the  producer  must  wait 
some  months  upon  Nature,  till  his  agency  is  again 
required  in  the  reaping.  This  fact,  that  agriculture 
can  be  less  facilitated  by  the  division  of  labor,  and  by 
the  use  of  machinery,  than  most  other  departments 
of  material  production,  constitutes  one  ground  of  an 
important  truth,  which  we  shall  hereafter  perceive 
stands  also  on  another  and  firmer  ground,  the  truth, 
namely,  that  agricultural  products  tend  constantly  to 
rise  in  value  as  compared  with  other  commodities. 


ON  LABOR.  103 

CHAPTER  VI.     "^^CaHforaUi. 

ON   LABOR. 

It  is  a  curious  thing,  and  one  that  draws  after  it 
very  important  consequences,  that  physical  labor 
consists  simply  in  moving  things.  When  a  man 
works  with  his  hands,  all  that  he  does,  or  can  do, 
is  to  produce  a  series  of  motions.  Human  muscles 
are  only  capable  of  two  things,  namely,  producing 
motion,  and  resisting  motion.  All  the  marvellous 
results  of  human  labor  in  all  the  world,  have  flowed 
from  so  simple  a  matter  as  the  contraction  and  ex- 
pansion of  muscle.  Work  is  motion,  and  weariness 
is  weariness  of  muscle.  The  world  of  materials  is 
so  cunningly  constructed,  that,  when  they  are  moved 
into  right  position  the  powers  of  Nature  do  the  rest, 
and  objects  of  utility  are  the  result. 

When  the  pioneer  fells  a  tree,  he  moves  his  axe 
through  the  trunk,  and  then  the  power  of  gravitation 
seizes  the  tree,  and  brings  it  to  the  ground.  He  pro- 
duces a  series  of  motions  upon  the  tree,  but  the  final 
motion,  by  which  the  century-girdled  oak  comes 
crashing  to  the  earth,  is  not  of  his  producing.  Na- 
ture does  that.  Wool,  cotton,  and  flax,  have  by 
nature  a  certain  tenacity  of  fibre.  Man  moves  these 
fibres  in  certain  relations  to  each  other  by  an  instru- 
ment called  a  spindle,  and  the  result  is  thread.  Then 
the  threads  are  moved  in  certain  relations  with  each 


104  ELEMENTS  OF  POLITICAL  ECONOMY. 

other  by  an  instrument  called  a  shuttle,  and  the  re- 
sult is  a  web  of  cloth.  The  tailor  moves  his  shears 
through  the  cloth,  and  then  his  needles,  and  the  result 
is  a  coat,  —  the  object  of  utility  for  which  all  these 
processes  wfere  gone  through  with.  The  farmer  first 
moves  the  ground,  then  moves  his  seeds  into  it, 
moves  his  sickle  through  the  standing  corn,  moves 
his  corn  to  the  granary  and  mill,  moves  his  meal 
from  the  mill  to  the  larder,  at  which  last  point  he 
surrenders  the  product  to  the  official  who  acts  as  his 
secretary  of  the  interior.  She  moves  the  meal  to  the 
kneading-trough,  and,  having  well  moved  it  there, 
moves  it  to  the  oven,  and,  from  the  oven,  after  due 
interval,  moves  it  to  the  table,  at  which  point  pro- 
duction ceases,  and  consumption  begins. 

Physical  labor,  then,  is,  and  can  be,  nothing  but 
this,  an  effort^  hy  which  materials  or  implements  are 
moved  with  reference  to  a  given  result.  Nature  fur- 
nishes all  the  materials,  and  all  the  primary  qualities 
of  which  we  avail  ourselves  in  production.  She 
cooperates  at  every  step.  We  pay  her  absolutely 
nothing  for  all  she  does.  All  we  can  shirk  off  our 
own  shoulders,  and  throw^  upon  hers,  is  so  much  clear 
gain.  And  it  is  a  most  happy  circumstance  that 
this  is  being  done  more  and  more  completely  in  the 
production  of  nearly  all  commodities.  Nature  is 
good,  to  use  a  commercial  term,  for  all  she  can  be 
made  to  carry. 

Now,  since  motion  is  the  only  thing  which  man  is 
required  to  furnish  in  the  production  of  commodities, 
he  naturally  looks  around  for  helps  in  this  matter. 
The  first  thing  he  lighted  on,  as  a  help  to  produce 
motion,  was  the  domestic  animals.     The  ox,  the  ass, 


ON  LABOE.  105 

the  horse,  were  doubtless  domesticated  in  the  very 
beginnings  of  society.  Men  want  these  animals  to 
produce  motion  for  them — ^simply  that.  And  as 
they  can  be  used  in  so  many  different  places,  and 
for  such  a  variety"  of  purposes,  and  are  so  cheaply 
reared,  they  are  exceedingly  convenient  as  a  motive 
power,  and  will  probably  never  be  superseded.  The 
discovery  and  application  of  the  great  motive  powers 
of  water  and  steam  have  scarcely  occasioned  a 
lessened  demand  for  the  earlier  and  humbler  motors, 
oxen  and  horses.  Some  of  my  readers  will  probably 
remember  the  time,  when  the  introduction  of  rail- 
roads was  opposed  by  some  people,  on  the  ground 
that  the  value  of  horses,  and  the  business  of  team- 
sters would  thereby  be  destroyed.  Experience  has 
demonstrated  in  this  case,  as  it  does  in  all  similar 
cases,  that  improved  machinery,  and  improved  facil- 
ities of  all  kinds,  so  far  from  harming  any  class  of 
persons  permanently,  are  likely  to  be  a  gain  to  all 
classes  of  persons.  At  least,  they  only  are  harmed, 
who  stupidly  hold  on  to  the  old  methods. 

Labor,  having  employed  from  a  very  early  time 
as  a  motive  power  the  domestic  animals,  secured 
after  a  while,  as  inanimate  auxiliaries,  the  water- 
wheel  and  the  windmill;  and,  much  later,  the  steam- 
engine.  It  is  a  point  that  has  scarcely  been  noticed, 
even  if  it  has  ever  been  noticed  at  all,  that  all  these 
auxiliaries,  whether  animate  or  inanimate,  produce 
simple  motions  of  the  same  kind  as,  and  only  sup- 
plemental to,  the  motion  produced  by  a  human  arm. 
The  most  ponderous  engine  merely  reduplicates  that 
which  the  arm  of  a  child  is  capable  of;  while  in 
point  of  delicacy  and  firmness  of  touch,  perhaps  no 


106      ELEMENTS  OF  POLITICAL  ECONOMY. 

machinery  has  yet  been  devised  which  can  subdivide 
and  apply  this  motion  as  skilfully  as  the  human 
fingers  can.  It  is  said,  that  some  of  the  lace  made 
wholly  by  hand,  is  finer  and  more  delicate  than  any 
yet  woven  by  machinery,  although  the  introduction 
of  machinery  into  lace-making  has  cheapened  the 
product,  according  to  Dr.  Ure,  to  about  3L  of  its  for- 
mer cost.  What  we  call  power,  then,  however  pro- 
duced, is  simple  motion.  But  in  order  to  subdivide 
these  motions  and  apply  them  to  the  various  purposes " 
of  production,  implements  of  all  sorts  are  needed, 
and  implements,  as  we  shall  see  in  the  next  chapter, 
are  always  the  gift  of  capital.  But  no  power  how- 
ever mighty  or  however  delicate,  and  no  implements 
however  perfect,  can  ever  dispense  with  some  por- 
tion of  human  labor.  Not  until  machinery  can  be 
taught  to  think,  to  adapt  means  to  ends,  will  human 
labor  cease  to  play  a  chief  part  in  production.  These 
therefore,  are,  and  always  will  be,  the  three  requisites 
of  material  production  :  Labor,  Power- Agents,  Cap- 
ital. 

Besides  physical  labor,  there  are  the  various  forms 
of  mental  efforts  put  forth  by  men  to  satisfy  the 
desires  of  other  men,  and  with  reference  to  a  return. 
So  far  as  exertion,  physical  or  mental,  is  put  forth 
for  amusement,  or  for  a  pure  benevolent  motive,  it 
has  nothing  to  do  with  Political  Economy.  It  is  onhj 
exertion  which  demands  for  itself  something  in  ex- 
change^ that  is  technically  labor.  Labor,  w^hich  is 
primarily  mental,  such  as  most  professional  labor, 
the  labor  of  the  editor,  the  teacher,  the  architect, 
has  of  course  little  connection  with  motion  or  with 
commodities.     But  it  is  not  on  that  account  less 


ON  LABOR.  107 

useful  or  less  valuable.  The  exchange  of  simple 
services  depends  on  the  same  principles,  gives  rise  to 
the  same  phenomena,  and  is  amenable  to  the  same 
science  as  all  other  exchanges.  One  man,  as  the 
violin-maker,  offers  services  .in  which  a  commodity- 
intervenes  ;  another,  as  the  violinist,  offers  services 
in  which  no  commodity  intervenes  ;  each  has  gained 
in  his  own  art  a  point  of  relative  advantage  as  com- 
pared with  other  men,  and  these  doubtless  have 
gained  some  point  of  relative  advantage  as  compared 
with  them ;  each,  by  the  sale  of  his  respective  ser- 
vice, meets  some  desire  of  the  buyer,  and  is  paid  on 
the  same  principle  as  the  other.  The  violin-maker 
of  Cremona,  who  sold  his  instruments  for  five  hun- 
dred francs  apiece,  was  no  more  and  no  less  a  laborer, 
in  the  language  of  our  science,  than  Paganini,  who 
sold  an  hour's  playing  in  the  theatres  for  five  thou- 
sand francs. 

Having  now  seen  what  labor  is,  let  us  pass  to  the 
principles  that  determine  its  remuneration.  I  can 
see  no  reason  why  the  purchasing-power  of  labor  is 
not  determined  in  the  same  way  as  the  purchasing- 
power  of  all  other  things;  and,  if  so,  there  is  no 
difficulty  in  pointing  out  the  general  law  of  wages. 
I  go  back  constantly  to  first  principles,  because  I 
believe  that  first  principles  really  control  everything. 
Chance  effects  there  most  certainly  are ;  but,  as  they 
happen  now  on  one  side  and  now  on  the  other,  they 
balance  each  other,  and  leave  all  the  great  working 
forces  unaffected.  For  the  sake  of  convenience,  a 
distinction  may  be  made  at  this  point  between  pro- 
fessional and  common  labor, —  a  distinction  which 
is  not  indeed  very  definite,  but  which  is  sufficiently 


108  ELEMENTS  OF  POLITICAL  ECONOMY. 

SO  for  the  purpose  in  hand.  The  wages  of  profes- 
sional labor  of  all  sorts  run  up  and  down  upon  a 
scale  whose  extremes  are  much  wider  apart  than  the 
extremes  of  the  scale  which  marks  the  variations  in 
the  wages  of  common  labor,  while  at  the  same  time 
the  principle  that  determines  the  value  of  both  forms 
of  labor  alike  is  the  principle  that  deternTiines  all 
other  value,  namely,  the  law  of  Supply  and  Demand. 
The  wages  of  professional  labor,  however,  are  so  far 
different  from  the  wages  of  common  labor  as  to 
demand  a  somewhat  distinct  treatment.  Why  could 
Daniel  Webster  demand  a  fee  of  .a  thousand  dollars 
for  attending  to  a  single  case  in  court,  Paganini  a 
like  sum  for  an  hour's  playing  on  a  violin,  and  Jenny 
Lind  at  least  as  much  for  an  evening's  singing  in  a 
concert  ?  Because  there  was  in  each  case  a  strong 
demand  for  a  peculiar  service,  and  only  one  person 
in  the  whole  world  who  could  render  that  service,  at 
least  in  the  same  perfection.  The  demand  was 
large,  the  supply  was  small,  and  the  value  conse- 
quently great.  The  highest  efforts  of  professional 
skill  will  always  receive  a  high  reward,  whenever 
there  is  one  person  even,  who,  together  with  a  strong 
desire  for  the  product,  has  also  the  power  to  give  a 
service  in  return  ;  and  especially  whenever  there  are 
many  persons  who  have  a  similar  desire  and  power, 
to  whom,  as  in  the  case  of  Paganini  and  Jenny  Lind, 
the  service  can  be  rendered  in  common  without 
lessening  the  satisfaction  of  each  individual.  That 
the  supply  is  small  in  these  higher  regions  of  skilled 
effort,  is  due  partly  to  the  fact,  that  Nature  is  not 
lavish  in  her  gifts  of  peculiar  talents,  and  partly  to 
the  fact,  that  those  who  have  received  have  assidu- 


ON  LABOR.  109 

ously  cultivated  them,  and  have  reached  in  conse- 
quence a  high  point  of  relative  advantage.  These 
persons  have  what  may  be  called  a  natural  monop- 
oly in  their  respective  fields  of  high  effort,  because 
there  are  few  others  who  have  the  natural  gifts  and 
the  acquired  skill  which  enable  them  to  come  in 
competition  with  them.  But  the  objections  which 
lie  with  such  force  against  artificial  monopolies,  can- 
not be  urged  at  all  against  a  natural  monopoly;  for, 
if  the  road  to  excellence  be  open  to  all,  and  no  arti- 
ficial obstructions  thrown  in  the  paths  of  any,  there 
is  no  blame  but  rather  praise  for  him  who  distances 
all  competitors,  and  demands  for  services  of  peculiar 
excellence  a  large  remuneration.  John  Sartain  is  a 
superior  engraver :  he  enjoys  a  natural  monopoly  in 
the  highest  walks  of  that  art ;  the  wages  of  his  labor 
are  very  high;  yet  nobody  can  complain  of  this, 
since  he  has  had  no  factitious  privileges,  but  has 
fairly  attained  his  excellence  under  freedom.  Ex- 
change rejoices  in  all  diversity  of  advantage  that  is 
the  birth  of  freedom,  but  reprobates  with  all  her  force 
advantage  that  is  gained  by  artificial  restrictions, 
because  artificial  restrictions  always  infringe  on 
somebody's  right  to  render  services  for  a  return ;  and 
the  right  to  render  services  for  a  return  is  the  funda- 
mental conception  in  the  right  of  Property.  The 
wages  of  professional  labor,  then,  are  determined  by 
the  relations  between  the  demand  for  such  labor  and 
the  supply  at  hand ;  and  are  usually  higher  than  the 
wages  of  common  labor,  because  the  supply  of  such 
laborers  is  restricted  by  the  lack  either  (1)  of  appro- 
priate original  gifts,  or  (2)  of  the  requisite  industry, 
or  (3)  of  the  means  of  suitable  education  and  train- 
ing. 


110  ELEMENTS  OF  POLITICAL  ECONOMY. 

Within  the  great  law  of  supply  and  demand,  there 
are  several  important  subordinate  principles,  which 
go  to  vary  the  wages  of  both  professional  and  com- 
mon labor,  principally  through  their  action  upon 
supply  ;  and  it  is  now  in  order  to  consider  these, 
before  we  pass  to  consider  the  wages  of  common 
labor.  In  common  with  all  the  writers  who  have 
succeeded  him,  I  shall'  avail  myself  freely  at  this 
point  of  the  labors  of  Adam  Smith.  That  writer 
considers  that  there  are  certain  circumstances  in  the 
employments  themselves,  which  either  really,  or  at 
least  in  men's  imaginations,  make  up  for  a  small 
pecuniary  gain  in  some,  and  counterbalance  a  great 
one  in  others. 
^  1.  The  agreeableness  or  disagreeableness  of  the 
employments  will  have  an  influence  in  determin- 
ing the  rate  of  wages  paid  to  those  who  engage  in 
them.  The  more  agreeable  employment  will  attract 
the  larger  number,  and  will  experience  in  conse- 
quence the  press  of  competition,  and  the  rate  of 
wages  will  be  lessened  by  the  increased  supply  of 
laborers.  The  more  disagreeable  employment  will 
feel  less  the  pressure  of  numbers,  and  will  secure, 
other  things  being  equal,  a  higher  rate  of  remunera- 
tion in  consequence.  Among  the  elements  which, 
in  spite  of  the  diversity  of  natural  tastes,  make  any 
employment  agreeable  or  disagreeable  to  the  labor- 
ers, are  (1)  the  less  or  greater  exertion  of  physical 
strength  required,  (2)  the  healthful ness  or  unhealth- 
fulness  of  the  labor,  (3)  its  cleanliness  or  dirtiness, 
(4)  the  degree  of  liberty  or  confinement  in  it,  (5)  the 
safety  or  hazard  of  the  employment,  (6)  the  esteem 
or  disrepute  of  it  in  public  opinion.     To  illustrate 


ON  LABOR.  Ill 

each  of  these  in  order,  the  stone-mason,  the  glass- 
blower,  the  scavenger,  the  factory  operative,  the 
worker  in  a  powder-mill,  the  smuggler,  will  each 
receive  a  larger  compensation  owing  to  the  peculiar 
element  of  disagreeableness  involved  in  his  employ- 
ment ;  and  he  will  be  able  to  demand  and  secure  it 
through  the  action  of  the  disagreeableness  upon  the 
supply  of  such  laborers.  Of  all  these  elements, 
public  opinion  is  perhaps  the  most  operative;  and 
if  this  be  favorable  to  an  employment,  and  some 
social  consideration  be  attached  to  it,  and  only  com- 
mon qualifications  be  required  for  it,  the  wages  in  it 
will  infallibly  be  low.  This  is  probably  the  main 
reason  why  so  many  young  women  prefer  to  teach, 
rather  than  be  employed  in  mills,  shops,  or  offices,  and 
why  the  wages  of  female  teachers  are  so  pitifully  low; 
although  each  of  the  elements  of  agreeableness  spec- 
ified above  may  also  contribute  something  towards 
the  same  result.  If  a  business  be  decidedly  opposed 
to  public  opinion,  it  must  hold  out  the  inducement 
of  a  large  reward,  or  nobody  will  engage  in  it.  This 
explains  the  abnormal  gains  of  the  slave-trade,  the 
liquor-business,  of  gambling-houses,  and  of  lotteries. 
2.  The  easiness  and  cheapness,  or  the  difficulty 
and  expense,  of  learning  different  employments, 
will  have  an  influence  on  the  rate  of  wages  paid 
in  them.  The  more  quickly  and  cheaply  one  can 
learn  to  perform  the  duties  of  a  place  satisfactorily, 
the  less,  so  far  forth,  will  be  his  wages;  because 
there  will  be  many  who  will  compete  with  him  in 
rendering  such  services ;  the  more  time,  difficulty, 
and  expense  involved  in  learning  a  business,  the 
larger,  so  far  forth,  will  be  the  wages  secured  by  it ; 


112  ELEMENTS  OF  POLITICAL  ECONOIMY. 

because  fewer  persons  have  the  means,  the  foresight, 
the  patience,  to  prepare  themselves  for  such  aj^  lo- 
cation. This  is  the  principal  ground  of  the  differ- 
ence in  the  wages  of  skilled  and  unskilled  labor. 
The  artisan  has,  at  least,  given  time,  and  the  pro- 
fessional man  has  given  both  time  and  money,  to  fit 
themselves  to  render  the  services  which  they  now 
offer  to  society ;  and  it  is  right,  therefore,  for  them 
to  demand  a  higher  rate  of  compensation  than  is 
accorded  to  operatives  and  common  laborers.  But 
a  right  to  demand  does  not  always  carry  along  with 
it  an  ability  to  secure :  in  this  case  it  does,  through 
the  reduction  of  numbers  which  these  oljstacles  at 
the  entrance  occasion,  and  the  consequent  weakness 
of  competition.  To  put  a  boy  apprentice  to  a  trade, 
requires  on  the  part  of  the  parents  a  foresight,  an 
ability  to  get  on  without  his  immediate  help,  and 
sometimes  an  amount  of  money  for  his  board  and 
clothes,  which  all  parents  do  not  possess ;  and  con- 
sequently, the  number  of  skilled  artisans,  who  must 
learn  when  they  are  young  if  at  all,  are  relatively 
few  compared  with  common  laborers,  and  are  able 
to  realize  a  much  higher  rate  of  wages  than  they. 
In  the  professions,  if  we  confine  our  attention  to 
those  persons  who  are  thoroughly  trained  for  them, 
we  shall  find  a  higher  rate  of  compensation  still, 
and  one  made  higher  on  the  same  principles; 
although  we  must  here  bear  in  mind  the  coun- 
ter-working influences  which  tend  to  increase  the 
competition  in  the  professions,  namely,  the  respecta- 
bility which  attends  them,  the  desire  of  knowledge 
for  its  own  sake  which  is  gained  in  connection  with 
them,  the  instruction  wholly  or  in  part  gratuitously 


ON  LABOR.  113 

offered  to  those  in  course  of  prepfeiration  for  them,  and 
the  desire  to  do  good,  without  regard  to  pecuniary 
reward,  which  actuates  many  who  enter  upon  them. 

3.  The  constancy  or  inconstancy  of  employment 
is  a  consideration  that  affects  wages.  If  the  em- 
ployment be  such  that  it  can  only  be  carried  on 
during  nine  months  of  the  year,  the  wages  of  the 
day  or  month  will  be  greater  than  they  would  be  if 
it  could  be  carried  on  during  the  twelve  months. 
The  laborer  looks  to  the  aggregate  earnings  of  the 
year,  and  will  hardly  take  up  a  trade  which  affords 
employment  but  a  part  of  the  time,  unless  some 
compensation  can  be  found  in  the  higher  wages  for 
that  time.  This  is  the  chief  reason  why  the  day's 
wages  of  the  mason  and  the  house-painter,  in  this 
climate  at  least,  are  higher  than  those  of  the  car- 
penter or  smith.  The  coachman,  also,  may  stand 
by  his  horses  half  the  day  or  night,  with  no  call 
for  his  services,  and  must  have,  therefore,  a  propor- 
tionably  higher  fare  from  those  whom  he  does 
transport.  In  general,  it  is  found  that  men  prefer 
a  constant  employment  with  a  lower  rate  of  wages, 
than  an  inconstant  one,  with  a  prospect  of  higher 
pay  for  the  particular  jobs  actually  done,  and  be- 
cause they  prefer  that,  those  who  take  up  with  the 
other  are  able  to  secure  a  higher  rate  of  pay  in  their 
less  eligible  ^vocation.  Counter  working  this,  how- 
ever, are  the  desires  which  many  men  have,  for 
intervals  of  leisure  in  their  business;  and  the  op- 
portunity to  make  these  intervals  subservient  to 
another  branch  of  business  or  means  of  livelihood. 

4.  The  amount  of  trust  involved  affects  wages. 
Men  in  responsible  positions  secure  a  higher  rate  of 


114  ELEMENTS  OF  POLITICAL  ECONOMY. 

pay  for  their  serviced  than  can  be  accounted  for,  ex- 
cept by  a  reference  to  the  unwillingness  of  people 
to  intrust  great  interests  to  others,  unless  they  are 
men  of  established  character  for  probity.  Such 
men,  men  who  combine  all  the  other  requisites 
for  an  important  post,  wdth  a  well-known  honesty, 
are  comparatively  rare ;  and,  when  they  are  found, 
will  receive  a  very  high  compensation  for  their  ser- 
vices. Treasurers  of  corporations,  cashiers  of  banks, 
and  holders  of  trust-funds  generally,  are  examples  in 
point.  Shall  we  say,  then,  that  men  oifer  their  hon- 
esty in  the  market,  as  they  offer  their  skill,  and  are 
paid  for  the  one  as  for  the  other  ?  No  I  Their  skill 
has  been  acquired  to  sell,  and  for  no  other  reason ; 
but  their  honesty,  if  it  be  genuine,  has  another  basis 
altogether;  and  he  who  is  honest,  simply  because 
honesty  is  the  best  policy,  is  not  honest  at  all !  The 
very  characteristic  of  honesty  is  that  it  cannot  be 
bought!  It  has  a  moral,  and  not  a  mercantile  foun- 
dation. In  point  of  fact,  a  man  w^ho  has  the  full 
confidence  of  his  fellow-citizens,  as  an  honest  man, 
and  at  the  same  time  all  the  other  qualifications 
requisite  for  a  post  of  high  pecuniary  trust,  is  in 
position,  partly  on  the  ground  of  his  honesty,  to 
render  a  high  service,  and  will  receive  for  that  ser- 
vice a  high  reward ;  but  I  protest,  in  the  name  of 
morals,  against  the  notion  that  honesty  is  a  market- 
able article:  it  is  rather  an  underlying  element  of 
moral  character,  which  fits  men  indeed  to  render 
certain  services,  but  the  honesty  is  maintained,  not 
for  the  sake  of  the  service,  but  has  an  independent 
basis  of  its  own.  So,  also,  most  people  would  pre- 
fer a  deeply  religious  man  for  a  preacher  and  spir- 


ON  LABOR.  115 

itual  guide,  but  it  is  a  perversion  of  language  to 
maintain  that  in  rendering  these  services  a  clergy- 
man sells  his  religion.  It  is  true  that  he  sells  ser- 
vices to  the  appropriate  rendering  of  which  his 
personal  piety  contributes  one  element;  but  the 
piety  is  not  nourished  for  the  sake  of  the  services, 
but  for  its  own  sake,  and  it  must  not  be  confounded 
with  that  which  is  sold.  Accordingly,  while  the 
clergyman's  vocation  is  sacred,  and  belongs  to  the 
sphere  of  religion,  his  salary  belongs  to  the  sphere 
of  exchange,  and  its  determination  is  wholly  a  busi- 
ness transaction.  This  distinction  ought  to  be  bet- 
ter understood  than  it  is ;  and  both  clergymen  and 
people  need  to  be  reminded  that  the  spiritual  things 
belong  to  one  sphere,  and  the  carnal  things  to  an- 
other. The  amount  of  a  clergyman's  salary,  and  the 
time  and  mode  of  its  payment,  are  matters  of  pure 
business;  and  the  clergyman  himself  is  to  blame  if 
he  does  not  attend  to  them,  and  insist  on  them,  on 
business  principles. 

5.  The  probability  of  success  in  any  employment 
is  a  circumstance  that  has  some  influence  on  the 
rate  of  wages  paid  in  it,  through  the  action  of  this 
probability  on  the  numbers  of  those  who  enter  upon 
it.  If  success  is  problematical,  fewer  will  engage  in 
such  a  business,  and  those  who  do  engage  in  it  and 
succeed,  will  reap  a  very  high  reward.  Ten  boys, 
for  example,  put  to  the  blacksmith's  trade,  ordinary 
capacity  being  presupposed,  will  probably  every  one 
succeed  in  becoming  a  tolerable  workman  ;  but  of 
ten  boys  of  the  same  capacity  put  apprentice  to  an 
engraver,  probably  not  over  three  would  ever  reach 
any  high  degree  of  skill  and  success ;  and  therefore, 


116  ELEMENTS  OF  POLITICAL  ECONOMY. 

the  pressure  of  numbers  will  be  felt  much  more  in 
the  former  than  the  latter  art.  So  also,  those  who 
take  jobs  by  contract,  and  who  consequently  assume 
some  risks,  are  usually  paid  at  a  higher  rate  than 
those  who  do  work  by  the  day.  It  is  true  that  this 
is  owing  partly  to  the  fact  that  the  contractor  com- 
monly uses  his  own  capital,  and  must  therefore  be 
paid  profits  as  well  as  wages,  and  also  that  the 
wages  of  superintendence  are  due  to  him  as  well 
as  ordinary  wages ;  still  there  is  a  residuum  of 
difference  which  can  only  be  accounted  for  by  the 
risk  he  runs  of  a  successful  issue.  The  differ- 
ence in  wages  from  this  fifth  cause  of  variation, 
would  be  greater  than  it  is,  were  it  not  for  the  over- 
weening confidence  which  most  men  have  in  their 
own  good  luck.  This  confidence  is  seen  in  the  rush 
which  is  always  made  for  newly  discovered  mining 
regions,  and  in  the  facility  with  which'  even  yet  lot- 
tery tickets  are  sold.  It  is  demonstrable  beforehand, 
on  the  doctrine  of  chances,  that  no  lottery  ticket  is 
worth  so  much  as  it  is  sold  for,  and  yet  men  buy  on 
in  spite  of  the  demonstration ;  and  experience  in 
California  and  at  Pike's  Peak,  has  sadly  taught  how 
excessive  was  the  confidence  in  their  own  success  of 
the  men  who  flocked  to  those  new  El  Dorados. 

6.  Custom  and  prejudice  and  fashion,  have  some- 
thing to  do  with  the  determination  of  wages  in  some 
departments.  Custom,  especially  in  former  times, 
has  been  very  operative.  The  current  fees  of  law- 
yers and  physicians  have  been  largely  dependent  on 
custom,  competition  merely  coming  in  to  decide 
how  many  such  fees  a  man  should  get,  rather  than 
lessening  the  amount  of  each  particular  fee.     Cus- 


ON  LABOE.  117 

torn  determines  the  wages  when  men  take  farms  on 
shares.  But  competition  is  now  breaking  down 
custom  in  all  directions,  and  will  soon,  I  think, 
reign  supreme  over  the  economic  field.  Prejudice 
is  closely  allied  to  custom,  and  has  some  voice  still 
in  adjusting  wages,  as  may  be  seen,  perhaps,  in  wo- 
men's w^ages,  crowded  down  to  a  point  unreasonably 
low,  as  compared  with  the  wages  of  men.  Custom 
and  prejudice  may  yield  the  field,  but  fashion,  which 
is  one  form  of  competition,  will  always  have  an 
influence  over  wages.  They  who  lead  the  styles  in 
any  department  whatsoever,  will  always  offer  their 
services  to  society  at  an  advantage  to  themselves, 
and  their  rate  of  compensation  will  be  legitimately 
higher  than  the  average  rate. 

7.  Legal  restrictions  and  voluntary  associations 
are  another  cause  acting  on  wages,  by  acting  on  the 
supply  of  laborers.  Laws  inhibiting  or  promoting 
immigration,  laws  appointing  the  fees  and  salaries 
of  officials,  tariff  laws,  whether  prohibitory  or  only 
restrictive,  unequal  taxation,  and  so  on,  all  have  an 
agency  in  adjusting  wages.  Governments  are  com- 
ing, however,  much  more  freely  than  formerly,  to 
leave  everything  except  the  wages  of  their  own  ser- 
vants, and  those  things  which  they  choose  to  tax,  to 
the  simple  and  safe  action  of  supply  and  demand. 
The  guilds  of  the  Middle  Ages,  and  the  trades' 
unions  of  our  own  day,  are  examples  of  voluntary 
associations  for  the  sake  of  regulating  the  wages  of 
the  members  by  combined  action.  The  restrictions 
in  the  old  guilds,  limiting  the  number  of  appren- 
tices to  each  artisan,  determining  the  time  a  man 
should  serve  before  he  could  become  a  master,  and 


118  ELEMENTS  OF  POLITICAL  ECONOMY. 

SO  on,  were  very  onerous,  and  have  mostly  passed 
away.  The  trades'  unions  in  this  country  have 
never  been  very  popular  or  successful.  The  Prin- 
ters' Union  in  the  principal  cities  has  just  been  dis- 
solved amid  universal  contempt.  The  spirit  of  Po- 
litical Economy,  which  is  the  spirit  of  freedom,  is 
against  such  associations  for  such  purposes.  If  any 
man  has  a  service  to  render,  let  him  offer  it  freely,  and 
make  the  best  terms  he  can  with  whoever  wants  it. 

Having  looked  at  the  principles  that  determine 
the  compensation  of  skilled  labor,  and  also  at  some 
causes  tending  to  vary  the  wages  both  of  skilled 
and  common  labor,  we  pass  now  to  a  consideration 
of  those  principles  more  particularly  applicable  to 
the  wages  of  common  labor.  All  value,  as  we 
know,  is  a  resultant  of  two  desires  and  two  efForts, 
and  is  variable  by  any  variation  of  either  desire  or 
either  effort.  When  the  laborer  offers  a  series  of 
efforts  to  another  person,  he  does  so  in  virtue  of  a 
desire  for  something  which  that  other  person  has  to 
give,  for  food,  clothing,  money ;  and  the  other  person 
has  a  desire  for  the  efforts  of  the  laborer,  and  is 
willing  to  give  in  return  the  food,  clothing,  money, 
or  whatever  it  may  be.  The  more  laborers  there  are 
who  offer  their  service  to  this  person,  the  more  likely 
he  is  to  obtain  the  service  at  a  cheap  rate,  since 
there  is  a  competition  among  the  laborers  to  secure 
that  food,  clothing,  money,  and  so  on,  which  he 
offers  in  return  for  the  service :  the  more  persons,  on 
the  other  hand,  who  offer  food,  clothing,  money,  and 
so  on,  to  the  laborers  there  present,  the  more  likely 
are  the  latter  to  receive  a  high  rate  for  their  efforts, 
since  there  is   a  competition   among  employers  to 


ON  LABOR.  119 

secure  such  efforts.  The  number  of  employers  and 
the  amount  of  that  which  they  offer  as  return  for 
such  efforts,  constitutes  the  demand  for  laborers; 
the  number  of  laborers  willing  to  render  service  for 
what  is  thus  offered  in  return,  constitutes  the  supply 
of  labor:  the  cuiTent  rate  of  wages  of  common 
labor  is  determined  by  the  adjustment,  that  is,  the 
equalization  of  the  demand  and  supply.  In  what 
we  have  said  thus  far  in  relation  to  wages,  we  have 
refeiTed  chiefly  to  causes  acting  on  the  supply  of 
laborers,  rather  than  on  the  demand  for  labor:  we 
must  now  look  in  the  other  direction,  and  anticipate 
the  discussions  of  the  next  chapter,  so  far  as  to  say, 
that  all  capital  constitutes  an  immediate  and  pressing 
demand  for  labor.  Whoever  deskes  a  service  which 
a  laborer  can  render,  and  lays  by  something  to  pay 
for  that  service,  creates  that  instant  a  demand  for 
labor;  a.nd  especially,  whoever  accumulates  raw  ma- 
terials which  laborers  are  to  work  up,  builds,  buys, 
or  keeps  machinery  which  laborers  are  to  tend,  or 
puts  himself  in  position  to  suffer  loss  by  the  owner- 
ship of  lands,  ships,  or  other  property  whatsoever, 
unless  laborers  be  employed  to  make  them  produc- 
tive, creates  thereby  an  instant  demand  for  labor. 
All  such  accumulations  whatsoever,  destined  in  the 
owner's  mind  to  be  employed  in  further  production, 
all  implements,  buildings,  and  improvements,  de- 
signed to  assist  labor,  and  raw  materials  which  labor 
must  work  up,  are  capital;  and  capital  must  be  con- 
stantly united  with  labor,  or  the  owners  will  suffer 
an  inevitable  loss.  The  presence  of  capital  any- 
where constitutes  a  demand  for  labor.  The  more 
capital  there  is  anywhere,  the  stronger  the  demand 


120  ELEMENTS  OF  POLITICAL  ECONOMY. 

for  labor;  and  capital,  therefore,  is  the  poor  man's 
best  friend.  Mr.  Carey  regards  the  laborer  as  at  a 
disadvantage  compared  with  capital,  because  the 
laborer  must  at  once  dispose  of  his  product,  or 
starve ;  which  seems  to  me  a  superficial  view  of  the 
relation,  because  capital  submits  to  an  instant  loss 
when  it  declines  to  employ  labor.  Capital  does  not 
like  to  lose  its  profit  any  more  than  the  laborer  likes 
to  lose  his  bread.  In  a  true  and  general  view,  the  one 
is  under  just  as  much  pressure  to  employ  laborers,  as 
the  other  to  get  employment.  They  come  together 
of  necessity  into  a  relation  of  mutual  dependence, 
which  God  has  ordained,  and  which,  though  man 
may  temporarily  disturb  it,  he  can  never  overthrow. 

Labor,  then,  takes  itself  to  the  market  to  effect  an 
exchange  with  capital.  It  is  only  capital  that  era- 
ploys  labor.  Now,  the  terms  of  the  exchange,  that  is 
to  say,  the  average  rate  of  the  wages  of  common  la- 
bor, will  depend  on  the  number  of  laborers  compared 
with  the  amount  of  capital  there  present.  The  ag- 
gregate of  all  the  forms  of  capital  there  present,  helps 
to  make  up  in  the  mind  of  the  capitalist  his  motive  for 
employing  labor,  because  the  more  he  has  invested 
in  buildings,  machinery,  and  materials,  the  more 
urgent  is  the  necessity  to  employ  laborers,  in  order 
to  make  the  investment  productive ;  although  only  a 
part  of  the  capital  is  free  to  be  offered  in  payment 
of  wages.  Demand  for  labor  is  constituted,  strictly 
speaking,  by  that  part  of  the  capital  which  is  avail- 
able to  be  offered  in  the  form  of  wages,  but  it  is 
clear,  that,  as  a  rule,  demand,  that  is,  the  portion  of 
capital  set  aside  for  the  payment  of  wages,  may 
increase  under  the  influence  of  increased  desire  for 


ON  LABOE.  121 

laborers,  and  an  increased  desire  for  laborers  is  a 
necessary  consequence  of  the  increase  in  the  aggre- 
gate of  capital.  Whether  the  portion  set  aside  for 
wages  will  increase  or  not,  on  an  increase  of  capital, 
will  depend  on  the  number  of  laborers.  It  is  cer- 
tainly possible  that  capital  may  go  on  increasing, 
while  the  wages-fund  (the  portion  set  aside  for  wa- 
ges) may  remain  stationary,  or  even  diminish.  Owing 
to  the  competition  of  an  increased  number  of  labor- 
ers, and  the  diminished  compensation  going  to  each. 
The  number  of  laborers  remaining  the  same,  and 
intelligently  comprehending  their  position,  the  size 
of  the  wages-fund  will  necessarily  keep  pace  with 
all  increase  of  aggregate  capital.  This  point  of 
connection  between  the  two,  this  influence  of  the 
whole  capital  on  the  desire  for  laborers,  and  con- 
sequently on  the  wages-fund,  is  a  point  which  I  do 
not  remember  to  have  seen  noticed  by  anybody,  yet 
which  is  obviously  of  much  importance  in  unfolding 
the  relations  of  labor  to  capital.  Now,  wherever 
there  is  capital  there  is  a  wages-fund,  and  we  have 
just  seen  what  the  connection  is  between  the  whole 
capital  and  that  portion  of  it  which  is  ready  to  be 
devoted  to  the  payment  of  wages.  If  we  call  this 
portion  of  capital,  or  wages-fund,  a  dividend,  and 
the  number  of  laborers  a  divisor,  the  quotient  will 
be  the  general  average  rate  of  wages  at  that  time 
and  place.  This  principle  invariably  determines  the 
current  rate  of  wages  in  any  country.  If  the  labor- 
ers are  few  relatively  to  the  amount  of  capital,  there 
will  be  a  large  dividend,  and  a  small  divisor,  and 
infallibly  a  large  quotient.  In  the  reverse  case,  when 
laborers   are   many   as    compared  with   the  capital 


Vy 


122  ELEMENTS  OF  POLITICAL  ECONOMY. 

that  seeks  to  employ  them,  the  large  divisor  and 
small  dividend  will  surely  give  a  small  quotient.  In 
the  first  case,  capitalists  will  compete  for  laborers, 
and  wages  will  go  up.  In  the  second  case,  laborers 
will  compete  for  employment,  and  wages  will  go 
down. 

We  see  now  what  we  are  to  think  of  many  reme- 
dies popularly  recommended  for  low  wages.  When 
wages  are  very  low  in  any  country,  or  in  any  depart- 
ment of  labor,  there  are  some  who  think  that  the 
government  ought  to  interfere  to  better  them,  at 
least  to  designate  a  minimum  below  which  wages 
shall  not  go  ;  others  propose  that  strong  public  opin- 
ion be  brought  to  bear  upon  employers,  to  induce 
them  to  give  sufficient  wages :  others  still  maintain 
that  combinations  among  the  workmen  themselves, 
for  the  purpose  of  dictating  the  rate  of  wages  to  the 
employers,  would  be  an  appropriate  and  effective 
remedy.  Every  one  of  these  is  a  delusion,  and  so 
is  every  other  proposal  that  ignores  the  law  of  wages 
just  established.  That  which  pays  for  labor  in 
every  country,  is  a  certain  portion  of  actually  accu- 
mulated capital,  which  cannot  be  increased  by  the 
proposed  action  of  government,  nor  by  the  influence 
of  public  opinion,  nor  by  combinations  among  the 
workmen  themselves.  There  is  also  in  every  coun- 
try a  certain  number  of  laborers,  and  this  number 
cannot  be  diminished  by  the  proposed  action  of  gov- 
ernment, nor  by  public  opinion,  nor  by  combina- 
tions among  themselves.  There  is  to  be  a  division 
now  among  all  these  laborers  of  the  portion  of  capital 
actually  there  present.  Suppose  there  has  been  free 
competition  on  both  sides,  and  that  the  average  rate  of 


ON  LABOR.  123 

wages  as  thus  determined,  is  one  dollar  per  day  for 
each  laborer.  Suppose  that  everybody  thinks  that 
this  is  insufficient,  and  that  government  accordingly 
issues  a  decree  that  wages  thereafter  must  be  one 
dollar  and  a  half  per  day  to  each  laborer.  This  de- 
cree has  no  tendency  to  increase  the  size  of'  the 
wages-fund ;  that  is  determined  by  the  general  pro- 
ductiveness of  labor,  and  by  the  division,  under  free 
competiti9n,  between  wages  and  profits ;  if  the  de- 
cree, therefore,  were  carried  out,  as  it  never  could  be, 
the  result  would  be  that  only  two  thirds  of  the 
laborers  there  present  could  be  employed  at  all, 
and  the  remaining  third  must  be  supported  by  char- 
ity, or  starve.  The  wages-fund  is  only  sufficient  to 
give  to  all  the  laborers  a  dollar  a  day,  and  if  the 
government  enforces  a  new  distribution  at  a  rate 
one  tfrird  higher,  then  one  tted-  of  the  laborers  can- 
not be  employed  at  all.  There  is  no  use  in  arguing 
against  any  one  of  the  four  fundamental  rules  of 
arithmetic.  The  question  of  wages  is  a  question  of 
Division.  It  is  complained  that  the  quotient  is  too 
small.  Well,  then,  how  many  ways  are  there  to 
make  a  quotient  larger?  Two  ways.  Enlarge  your 
dividend,  the  divisor  remaining  the  same,  and  the 
quotient  will  be  larger  :  lessen  your  divisor,  the  divi- 
dend remaining  the  same,  and  the  quotient  will  be 
larger.  All  accessions  to  capital,  all  investment  of 
profits  in  an  enlarged  business,  all  saving  from  ex- 
penditure for  the  sake  of  further  production,  will 
increase  the  dividend,  and,  the  number  of  laborers 
continuing  as  before,  the  rate  of  wages  will  rise. 
Or,  if  there  be  no  accessions  to  capital^  the  wages- 
fund  consequently  standing  as  before,  and  the  num- 


124  ELEMENTS   OF  POLITICAL  ECONOMY. 

ber  of  laborers  be  diminished,  as  by  emigration  to 
new  fields  of  effort,  or  by  enlistment  in  armies,  the 
divisor  will  be  lessened,  and  the  rate  of  wages  will 
rise.  The  reversed  suppositions  will  give,  of  course, 
reversed  results,  and  wages  will  go  down. 

Though  not  in  the  way  proposed,  there  is  a  way 
in  which  government  may  act  most  beneficially 
upon  this  matter  of  wages.  By  faithfulness  to  its 
peculiar  trust,  that  is  to  say,  by  making  the  rights 
of  person  and  property  as  secure  as  possible,  it  gives 
an  impulse  to  enterprise,  a  spur  to  industry,  makes 
the  desire  of  accumulation  effective,  and  thus  indi- 
rectly but  most  powerfully  contributes  to  the  in- 
crease of  capital,  to  the  fund  out  of  which  wages 
are  paid.  Also,  by  fostering  the  means  of  educa- 
tion, and  by  the  diffusion  of  knowledge  among  all 
classes,  government  acts  beneficially  upon  the  labor- 
ers, to  make  them  intelligent,  to  impart  to  them  that 
character  and  self-respect  which  fits  them,  in  ex- 
changing services  with  capital,  to  demand  and  secure 
their  full  rights  in  the  exchange.  It  is  not  denied 
that  capital  takes  advantage  of  the  ignorance  and 
immobility  of  laborers,  and  sometimes  secures  their 
services  at  a  less  rate  than  the  just  relations  of 
capital  to  labor  then  and  there  would  indicate,  but 
the  remedy  for  this  is  not  in  arbitrary  interference 
of  government  in  the  bargain,  but  in  the  intelligence 
and  self-respect  of  the  laborers  which  shall  fit  them 
to  insist  on  a  just  bargain.  In  this  whole  sphere  of 
exchange,  the  just  and  comprehensive  rule  always 
will  be,  that  when  men  exchange  services  with  each 
other,  each  party  is  bound  to  look  out  for  his  own 
interest,  to  know  the  market-value  of  his  own  ser- 


ON  LABOR.  125 

vice,  and  to  make  the  best  terms  for  himself  which 
he  can  make.  Capital  does  this  for  itself,  and  la- 
borers ought  to  do  this  for  themselves,  and  if  they 
are  persistently  cheated  in  the  exchange,  they  have 
nobody  to  blame  but  themselves.  Government 
should  give  them  all  facilities  for  intelligence: 
they  should  give  themselves  a  character,  and  cher- 
ish a  hearty  self-respect,  which  there  is  nothing  in 
their  position  to  diminish  :  towards  such  laborers, 
capital  occupies  no  vantage  ground  in  an  exchange 
of  mutual  services. 

Public  opinion  can  do  something  towards  better- 
ing the  wages  of  labor,  in  countries  where  they  are 
low,  by  organizing  means  to  assist  the  laborers  in 
distributing  themselves  at  points  where  their  ser- 
vices are  most  in  demand.  Societies  in  our  sea- 
board cities,  whose  object  it  is  to  aid  immigrants  to 
pass  on  from  those  cities  where  labor  is  very  abun- 
dant, to  the  country  towns  and  to  the  West,  where  it 
is  relatively  much  less  so,  are  commendable  in  their 
purpose  and  spirit.  So  also  are  emigration  societies, 
in  countries  situated  as  Ireland  has  been,  where  cen- 
turies of  miso^overnment  combined  with  centuries  of 
ignorance,  produced  a  temporary  pressure  of  popu- 
lation on  the  means  of  support.  Where  such  pres- 
sure exists,  as  it  does  also  in  China,  it  is  a  good 
thing  for  public  opinion  to  be  favorable  to  emigra- 
tion to  newer  and  more  fortunate  countries,  and 
liberally  to  assist  in  the  distribution  of  labor  to  those 
points,  wherever  they  may  be,  where  capital  is  ready 
and  anxious  to  employ  it. 

It  may  surprise  some  who  are  familiar  with  books 
on  Political  Economy,  that  I  do  not  here  adduce  the 


126  ELEMENTS  OF  POLITICAL  ECONOMY. 

influence  of  public  opinion  in  restraining  population 
as  favorable  to  wages,  and  inveigh  against  the  force 
of  that  spring  of  population  which  the  Creator  has 
coiled  up  in  the  nature  of  man,  as  compared  with 
the  weakness  of  that  power  by  which  the  earth  pro- 
duces sustenance  for  man.  In  respect  to  the  law  of 
population  and  of  human  fecundity,  I  have  only  to 
say,  that  it  is  just  that  with  which  God  saw  best  to 
endow  the  race ;  that  experience  has  shown  that  it 
is  not  too  strong  for  the  purpose  for  which  it  was 
given;  that  under  it,  men  are  bound  to  act  rationally 
and  religiously,  as  accountable  to  God ;  that  the 
same  law  of  population  which  produces  laborers, 
produces  capitalists  as  well,  and  that  the  restraints 
on  population,  which  economists  have  been  at  such 
pains  to  commend,  are  as  likely  to  keep  capitalists 
out  of  the  world  as  laborers,  which  would  be  a  dis- 
advantage to  the  latter ;  that  every  human  being  is 
as  much  constituted  by  nature  to  receive  services  as 
to  render  them,  and  therefore,  until  it  is  demon- 
strated that  the  earth  can  no  longer  support  the 
population  that  is  in  immediate  prospect,  no  sound 
commercial  reason  can  be  given  for  artificial  re- 
straints on  population ;  and  finally,  that  Political 
Economy,  as  the  science  of  exchange,  presupposes 
the  actual  existence  of  men  in  society,  and  there- 
fore, that  it  is  without  its  province  to  discuss  the 
law^s  under  which  they  are  born  into  society,  and 
especially  without  its  province  to  discuss  the  future 
possible  contingency,  nowise  likely  to  happen  in  ac- 
tuality, when  the  broad  bosom  of  mother  earth  shall 
be  unable  any  longer  to  nourish  and  support  her 
children.     In  saying  this,  I  would  not  be  understood 


ON  LABOR.  127 

to  deny  that  in  certain  states  of  s^ociety,  in  certain 
parts  of  the  earth,  population  has  pressed  heavily 
upon  food ;  or  that  poverty  and  improvidence  do 
sometimes  stimulate  population,  or  that  intelligence 
and  self-respect  are  needful  to  order  that  marriages 
may  be  well  and  wisely  contracted.  What  I  affirm 
is,  that,  under  freedom  to  receive  and  render  ser- 
vices, to  which  freedom  all  men  have  a  natural  right, 
and  under  intelligence  and  morality,  which  all  men 
are  bound  to  possess,  this  matter  of  population  will 
perfectly  regulate  itself;  that  there  is  no  prospective 
and  calculable  danger  that  population  will  ever  out- 
strip the  means  of  supporting  it;  that  the  popula- 
tion of  the  world,  as  a  whole,  was  never  so  well  fed 
and  clothed  and  housed  as  it  is  to-day;  that  the 
alleged  laws  of  nature  in  respect  to  the  increase  of 
population  and  of  food,  which  are  said  to  be  in  an- 
tagonism, have  never  yet  been  proved ;  and  that,  in 
any  actual  case  of  persistent  pressure  of  numbers 
on  the  means  of  life,  it  is,  to  say  the  least  of  it, 
quite  as  reasonable  to  look  for  the  causes  in  the 
miscalculations  and  maladministrations  of  men,  as 
in  alleged  colliding  laws  of  God. 

But  will  not  strikes  accomplish  that  for  the  raising 
of  wages  which  neither  government  nor  public  opin- 
ion can  effect?  A  strike  is  a  combination  among 
workmen  for  an  increase  of  wages.  They  agree  to 
stop  work  altogether  until  their  employers  shall  com- 
ply with  their  terms,  and  raise  their  wages  to  a  cer- 
tain definite  sum.  It  is  not  to  be  denied  that  work- 
men thus  possess,  under  many  circumstances,  a  very 
considerable  reserved  power  which  they  can  bring  to 
bear  upon  their  employers.     "When  the  processes  of 


128  ELEMENTS  OF  POLITICAL  ECONOMY. 

production  are  going  briskly  forward,  when  the  man- 
ufactory is  thoroughly  furnished  with  competent 
hands,  and  profitable  orders  are  in  waiting,  it  is  no 
laughable  thing  for  the  owner  to  be  told,  of  a  cloudy 
morning,  that  his  hands  have  all  stopped  work,  and 
refuse  to  lift  a  finger,  until  he  shall  agree  to  pay  them 
wages  at  a  rate  which  they  themselves  dictate.  Of 
course,  his  first  impulse  is  to  discharge  every  man  of 
them,  and  endeavor  to  fill  his  factory  with  new  hands. 
But  this  he  cannot  always  do.  At  best  it  will  take 
time.  Meanwhile  his  wheel  or  engine  must  be  idle, 
customers  be  lost,  orders  unfilled,  and  profits  no- 
where. And  so,  many  an  employer  has  surrendered 
to  a  strike,  when  he  felt  that  it  was  all  unjust,  rather 
than  undergo  a  still  greater  loss.  It  is  admitted  that 
workmen  may  sometimes  strike  and  gain  their  point, 
but  it  is  none  the  less  true  for  all  that,  that  strikes 
are  false  in  theory  and  pernicious  in  practice ;  that 
they  spring  from  utter  misapprehension  of  the  true 
principles  of  wages ;  that  they  embitter  relations 
between  employers  and  employed  which  ought  to  be 
cordial  and  free ;  and  that  they  rarely  or  never  are 
permanently  advantageous  to  the  workmen  them- 
selves. 

In  the  first  place,  then,  strikes  are  false  in  theory. 
It  is  a  very  old  adage,  that  it  takes  two  to  make  a 
bargain.  Express  this  in  the  language  of  Political 
Economy,  and  it  will  take  this  form:  When  two 
men  have  mutual  services  to  exchange,  let  them 
come  to  a  fair  agreement  as  to  the  terms  on  which 
they  will  exchange.  Certainly,  let  each  make  the 
best  terms  he  can,  but  let  the  bargain  always  be  free. 
If  one  party,  who  happens  to  have  the  power  to  do 


ON  LABOR.  129 

it,  uses  compulsion  upon  the  other,  it  ceases  to  be  a 
bargain  at  all,  and  becomes  a  sort  of  robbery.  If, 
driving  with  my  good  horse  along  a  lonely  road,  I 
meet  another  man  driving  an  inferior  one,  and  he, 
being  the  stronger  man,  compels  me  to  exchange 
horses,  it  may  be  all  very  well  for  him,  but  I  protest 
that  it  is  no  bargain.  It  is  robbery.  Now,  workmen 
bring  a  certain  valuable  service  to  the  market,  just 
such  a  service  as  the  capitalist  wants,  and  he  has  to 
offer  just  such  a  service  as  they  want,  namely,  wages. 
Now  let  them  come  to  a  free  and  fair  agreement  on 
the  terms  of  their  exchange.  Let  the  workmen  by 
all  means  make  the  very  best  terms  they  can ;  let 
them  insist  to  the  last  penny  on  all  which  they  can 
get  elsewhere,  for  the  value  of  their  service  is  deter- 
mined, as  the  value  of  every  other  service  is  deter- 
mined, by  what  it  will  bring.  Let  the  employer  do 
the  same.  Let  a  fair  bargain  be  struck.  There  is 
no  objection  to  this  kind  of  striking;  and  the  more 
intelligence  and  skill  and  self-respect  a  workman  has, 
the  better  prepared  he  is  to  strike  the  bargain  and 
secure  bis  just  due.  K  the  employer  will  not  yield 
him  this,  let  him  have  done  with  it  at  once,  and  go 
elsewhere.  Or,  if  a  just  bargain  has  been  struck, 
and  afterwards  circumstances  shall  so  alter  that  he 
thinks  he  can  rightfully  demand  more,  let  him  frankly 
demand  it,  remembering  always  that  it  is  an  ex- 
change he  has  to  do  with,  and  that  it  takes  two  to 
make  a  bargain.  If  he  does  not  get  for  his  service 
what  he  thinks  he  ought  to  get,  let  him  quit.  He 
has  a  perfect  right  to  quit.  All  this  is  legitimate 
and  fair  and  above  board. 

But  a  strike  is  wholly  different.     This  brings  com 


130  ELEMENTS   OF  POLITICAL  ECONOiMY. 

pulsion  into  play.  A  combination  among  workmen 
to  leave  an  employer  in  the  lurch,  and  especially  a 
combination  which  forces  into  its  ranks  by  cajoling 
or  menaces,  those  who  are  unwilling  to  join  it,  is  of 
itself  a  confession  of  the  injustice  of  the  claim.  If 
the  claim  be  just,  there  is  no  occasion  to  extort  it. 
If  the  value  of  the  service  rendered  be  equal  to  the 
sum  demanded,  if  this  can  be  obtained  elsewhere, 
there  is  no  need  of  consultation  and  conference,  com- 
bination and  conspiracy.  Let  each  man  go  quickly 
where  he  can  get  the  most  for  his  service.  The  fact 
that  this  is  not  done,  that  means  are  brought  to  bear 
upon  the  employer  which  are  not  ordinarily  used  in 
bargains, —  means  of  the  nature  of  a  threat  —  that 
the  justice  of  the  claim  is  not  relied  on  in  a  case 
where,  more  than  anywhere  else,  justice  can  enforce 
itself,  that  full  and  free  explanations  are  not  had, 
that  no  notice  is  given,  that  great  damage  is  ex- 
pected by  their  action  to  accrue  to  the  employer,  all 
this  seems  to  forget  that  the  transaction  between 
employers  and  employed  is  a  case  of  pure  exchange, 
a  simple  bargain  of  one  service  against  another  ser- 
vice. Therefore,  I  say,  that  strikes  are  false  in 
theory. 

But  this  is  not  the  worst  of  it.  Strikes  are  per- 
nicious in  practice.  And  the  grand  reason  for  this 
is  they  tend  to  lessen  the  wa^es-fund.  The  produc- 
tion of  all  material  commodities  is  a  joint  process. 
Capital  and  labor  both  conspire  in  it.  The  gross 
returns  belong  wholly  to  the  capitalists  and  the  labor- 
ers. The  profits  of  capital  and  the  wages  of  labor 
are  paid  out  of  these  returns  and  from  no  other 
source.     It  is  for  the  interest  of  both  capitalists  and 


ON  LABOR.  131 

laborers  that  these  returns  be  as  large  as  possible, 
because  they  are  wholly  divided  between  the  two, 
and  if  the  whole  be  large  the  parts  will  also  be  large. 
Profits  being  taken  out,  the  rest  is  wages-fund ;  or, 
more  strictly  speaking,  wages-fund  being  taken  out, 
the  rest  is  profits.  It  makes  no  difference  practically 
that  the  wages  have  been  advanced  to  the  laborers 
while  the  production  was  still  going  forward,  since 
the  wages  really  come  out  of  the  proceeds  of  the 
joint  process.  The  capitalist  never  means  to  pay 
wages  out  of  his  previous  accumulations,  and  ought 
not  to  be  expected  to  do  so,  and  were  he  obliged  to 
do  so,  it  would  soon  be  worse  for  the  laborers,  since 
these  accumulations  are  the  only  stock  which  sup- 
ports labor.  It  is  not  only  just  but  needful  for  the 
laborers,  that  wages  shall  be  paid  out  of  the  pro- 
ceeds of  that  on  which  labor  is  now  expended. 
Whatever,  then,  tends  to  lessen  these  proceeds, 
necessarily  lessens  the  wages-fund.  Any  interrup- 
tion of  the  process  of  production  by  strikes,  any 
want  of  full  and  hearty  cooperation  between  the  two 
parties  to  the  joint  process,  will,  if  continued,  infalli- 
bly make  the  wages-fund  smaller. 

Suppose  it  takes  three  months  to  realize  the  re- 
turns in  some  branch  of  manufacture.  If,  when  the 
workmen  are  paid  off  at  the  end  of  one  three  months, 
they  all  strike  at  the  beginning  of  the  next,  and  both 
parties  hold  out  for  three  months,  what  is  now  the 
chance  for  higher  wages  ?  It  shall  go  hard  even  if 
they  get  as  much  as  before.  And  why  ?  Because 
the  mill  has  stood  idle,  and  the  fund  out  of  which 
alone  wages  are  paid  has  not  been  created.  The 
capitalist  has  lost  all  his  profits,  and  they  have  lost 


132  ELEMENTS  OF  POLITICAL  ECONOMY. 

Eill  their  wages  for  three  months,  and  now  when  they 
come  to  begin  again,  wages  are  to  be  advanced,  not 
out  of  a  fund  already  in  existence  as  it  would  have 
been,  but  out  of  a  fund  not  yet  created.  The  em- 
ployer is  by  no  means  in  as  good  position  to  raise 
the  wages  as  before  the  strike.  He  has  lost  profits 
which  he  might  have  put  back  into  his  business  as  a 
part  of  a  new  wages-fund.  He  has  lost  customers 
by  the  strike,  and  his  business  relations  are  all  dis- 
arranged. His  workmen  by  inflicting  a  loss  upon 
themselves  have  found  an  opportunity  of  inflicting 
a  loss  upon  him.  Their  loss  is  undoubtedly  the 
greater  of  the  two.  Therefore,  I  say,  strikes  are 
commonly,  and  almost  necessarily,  a  disadvantage 
to  the  workmen  themselves.  The  case  just  put  is  a 
strong  case  to  show  the  principle  involved,  but  all 
interruption  whatever  to  the  processes  of  production 
by  strikes,  all  consequent  embittered  relations  be- 
tween employers  and  employed,  all  want  of  hearty 
working  together  of  the  labor  with  the  capital,  tend 
to  diminish  the  gross  returns,  and  consequently,  both 
the  wages-fund  and  profits.  As  far  as  this  point  is 
concerned,  there  is  no  sense  or  reason  in  the  common 
jealousy  of  workmen  towards  employers.  There  is 
no  real  antagonism  between  them.  Their  interests 
lie  along  the  same  line.  They  are  partners  in  the 
same  concern.  Workmen  who  are  intelligent,  pru- 
dent, skilful,  will  infallibly  get  their  due.  Employ- 
ers who  are  humane,  urbane,  fair,  will  find  their 
account  in  it. 


ON  CAPITAL. 


133 


CHAPTER  VII. 

ON  CAPITAL. 


The  three  requisites  of  production  are  labor, 
power-agents,  and  capital.  Of  the  first  we  have 
now  learned  what  can  be  learned,  without  attending 
in  turn  to  its  counterpart  —  capital ;  -of  the  second 
we  have  learned  already  that  all  the  powers  of  Nature 
work  gratuitously  in  the  service  of  man ;  and  of  the 
third,  we  are  now  to  learn  what  it  is,  how  it  arises, 
how  it  works,  and  what  its  influence  is  upon  the 
progress  and  amelioration  of  society.  Political  econ- 
omy is  able  to  show  that  there  is  no  natural  opposi- 
tion of  interest  between  capitalists  and  laborers ; 
that  capital  is  just  as  dependent  on  labor  as  labor  is 
dependent  on  capital ;  that  each  is  equally  interested 
in  the  prosperity  of  the  other,  and  that  thus  a  deep 
and  admirable  harmony  subsists  in  this  part,  as  in 
every  other  part,  of  the  social  organism. 

Capital  is  any  product  reserved  to  he  employed  in 
further  production.  This  definition  will  be  found  to 
cover  all  the  cases,  to  obviate  many  difficulties,  and 
to  take  the  life  out  of  many  disputes.  Mr.  Carey  de- 
fines capital  as  the  instrument  by  means  of  which 
man  obtains  mastery  over  Nature,  including  in  it 
the  physical  and  mental  powers  of  man  himself, 
and  thus  needlessly  confuses  the  boundaries  between 
capital  and  labor.     It  is  much  simpler  and  better  to 


134  ELEMENTS  OF  POLITICAL  ECONOMY. 

define  labor,  as  has  already  been  done,  as  physical 
or  mental  exertion  for  the  sake  of  a  return,  and  to 
define  capital,  as  is  now  done,  as  any  product  out- 
side of  himself  reserved  by  man  for  further  produc- 
tion. There  are  many  products  devoted  to  immediate 
consumption  ;  that  is  to  say,  to  the  gratification  of 
present  desires,  without  any  reference  to  the  render- 
ing of  future  services  by  means  of  their  help.  Such 
products  are  not  capital.  They  are  a  portion  of  the 
wealth  of  the  community,  they  are  valuable,  but 
capital  they  are  not.  All  capital  is  wealth,  but  all 
wealth  is  not  capital.  Only  that  portion  is  capital 
which  employs,  assists,  and  pays  for  labor.  All  raw 
materials  are  capital,  all  machinery  is  capital,  all 
funds  destined  to  purchase  these,  and  all  funds  des- 
tined for  wages,  are  capital.  As  all  values  reside  in 
services  exchanged,  so  all  capital  resides  in  services 
accumulated  with  reference  to  an  ultimate  exchange. 
It  is  only  in  the  intention  of  the  owner  that  capital 
can  be  discriminateji  from  other  products  destined 
by  him  for  the  gratification  of  himself  and  his  family, 
or  for  benevolent  purposes.  Take  a  hardware  manu- 
facturer, for  example,  and  he  has  a  stock  on  hand  of 
finished  hardware,  a  part  of  the  proceeds  of  which 
he  will  put  back  into  his  business  in  the  form  of 
materials,  tools,  and  wages,  and  another  part  will  go 
in  the  form  of  personal  and  family  expenditure,  and 
it  is  only  his  ?titention  that  discriminates  the  first 
part,  which  is  purely  capital,  from  the  second  part, 
which,  as  far  as  he  is  concerned,  is  not  capital  at  all. 
It  may  indeed  become  capital  in  the  hands  of  those 
to  whom  he  pays  it  out ;  and  will  become  so,  in  case 
they  destine  it  as  an  aid  to  further  production  in 


ON*  CAPITAL.  135 

their  several  lines  of  business.  The  whole  mass 
of  capital,  then,  in  any  country,  is  the  whole  mass  of 
those  products,  of  whatever  kind,  which  are  destined 
in  the  mind  of  their  owners  to  be  retained  as  an  aid 
towards  rendering  future  services  to  society. 

How  does  capital  arise  ?  We  have  seen  that 
there  are  obstacles  which  lie  in  the  way  of  the  grati- 
fication of  men's  desires  in  all  directions,  and  that 
these  obstacles  can  only  be  removed  by  human  effort. 
When  a  man  devotes  himself  to  one  set  of  these 
obstacles,  with  a  view  to  surmount  them,  he  is  not 
long  in  discovering,  that  if  he  had  certain  tools,  his 
work  would  be  greatly  facilitated  ;  and  having  dis- 
covered that,  it  will  not  be  long  before  he  will  at- 
tempt himself,  or  induce  others  to  attempt,  to  invent 
such  tools.  The  beaver  gnaws  down  the  tree  with 
his  teeth,  from  generation  to  generation  ;  but  man  is 
a  being  more  nobly  endowed  than  the  beaver,  and 
no  sooner  had  he  occasion  to  fell  trees,  than  some- 
thing of  the  nature  of  an  axe  suggested  itself  to  his 
ingenuity.  It  is  true,  that  his  earliest  attempts  at 
axe-making  were  probably  of  the  rudest  sort,  but 
just  as  soon  as  anything  was  devised,  whether  of 
flint  or  shell  or  metal,  that  rendered  easier  the  labor 
of  felling  a  tree,  capital  made  a  beginning  along  that 
line  of  obstacles.  Among  the  more  gifted  races, 
progress  in  this  direction  was  perhaps  more  rapid 
than  we  are  wont  to  think  it  was,  since  Tubal-cain, 
even  in  the  times  before  the  flood,  is  said  to  have 
been  "  an  instructor  of  every  artificer  in  brass  and 
iron."  At  any  rate,  we  are  at  no  loss  to  explain  the 
origin  of  capital :  it  is  found  in  the  motive  that 
exists  everywhere,  and  that  always  existed,  to  lessen, 


136  ELEMENTS  OF  POLITICAL  ECONOMY. 

if  possible,  a  given  irksome  effort  that  is  the  condi- 
tion of  a  given  satisfaction.  And  this  origin  of 
capital  gives  the  key-note  to  its  universal  use  and 
indefinite  expansion.  Tools  are  invented  and  em-  ^ 
ployed  for  no  other  reason  than  this,  that,  by  means 
of  their  help,  the  human  effort  is  lessened  relatively 
to  a  given  satisfaction.  The  powers  of  Nature,  ^^^^ 
whic^  grow  the  grain,  which  bring\  down  the  tree,  j 
which  turn|  the  wheel,  which  impeli  the  locomotive,  V 
which  send^  the  message  round  the  world,  all  stand 
ready  to  slave  in  the  service  of  man ;  but  in  order  to 
make  their  aid  available  for  human  purposes,  there 
must  be  a  plough,  an  axe,  a  wheel,  an  engine,  an 
electric  machine.  These,  and  all  other  implements 
whatsoever,  from  the  tiniest  needle  to  the  most  pon- 
derous engine,  are  products  created  and  retained  for 
the  sake  of  further  production.  They  are  capital. 
They  are  not  capable  of  yielding  in  themselves 
an  ultimate  satisfaction  to  human  wants,  but  they 
mediate  between  the  powers  of  Nature,  which  they 
enable  us  to  make  available  for  our  purposes,  and 
those  ultimate  satisfactions.  Nature  furnishes  all  ' 
the  powers,  and  all  the  natural  qualities  of  objects, 
but  labor  can  go  but  a  very  little  way  towards 
making  these  available  for  the  satisfaction  of  human 
wants,  without  the  aid  of  implements  and  contri- 
vances which  are  produced  by  labor;  and  which, 
being  retained  as  an  aid  to  future  labor,  are  capital. 
Since  it  requires  tools  to  make  tools,  the  progress  of 
capital  at  first  was  very  slow ;  but,  since  every  ad- 
vance in  mechanical  contrivance  makes  still  further 
advances  easier,  there  is  a  natural  tendency,  which 
facts  abundantly  exemplify,  to   a   more   and  more 


ON  CAPITAL.  137 

rapid  progression  in  the  number  and  perfection  of 
all  implements  of  production.  The  same  motive 
that  impelled  to  the  first  invention,  has  impelled  to 
the  whole  series  of  inventions  since,  and  will  con- 
stantly impel  to  further  inventions  till  the  end  of 
time.  This  motive,  —  and  there  is  no  motive  that 
actuates  man  more  universal,  —  is,  to  lessen  the 
onerous  effort  of  human  muscle,  and  to  throw  upon  the 
ever-willing  shoulders  of  Nature  more  and  more  of  the 
burden  of  production.  Every  step  of  this  progress 
gives  birth  to  a  larger  and  larger  proportion  of  satis- 
factions relatively  to  efforts ;  marks  an  increasing 
control  on  the  part  of  man  over  the  powers  of 
Nature ;  and  gives  promise  for  the  time  to  come  of 
greater  advantages  still  in  both  these  two  directions. 
And  it  is  because  capital  brings  gratuitous  natural 
forces  into  service,  and  the  more  so  as  capital  pro- 
gresses, that  the  value  of  those  things  created  by  the 
aid  of  capital  tends  constantly  to  decline  as  com- 
pared with  the  value  of  those  things,  in  whose  pro- 
duction capital  less  conspires ;  and  in  the  chapter 
following  the  next  will  be  developed  from  this  point 
one  or  two  important  laws  of  value. 

Now,  then,  having  seen  what  capital  i&,  and  the 
human  motive  that  brings  it  forward  in  production, 
we  next  inquire  after  its  remuneration.  The  remu- 
neration of  capital  is  technically  called  profits :  just 
as  wages  are  technically  the  remuneration  of  labor. 
The  present  proposition  is,  that  profits  are  the  legiti- 
mate reward  of  a  service,  just  as  much,  and  in  the 
same  sense,  as  wages  are  the  legitimate  reward  of  a 
service.  The  distinctive  service  of  the  capitalist  as 
such,  as  distinguished  from  the  service  of  the  laborer, 


188  ELEMENTS  OF  POLITICAL  ECONOMY. 

consists  in  his  voluntary  abstinence  from  the  use  and 
enjoyment  of  that  which  he  contributes  in  aid  of 
further  production.  If  a  man  puts  a  thousand  dol- 
lars, which  he  might  spend  upon  his  immediate 
gratifications,  into  a  machine  to  be  used  in  his  busi- 
ness, the  money  immediately  becomes  capital;  the 
owner  practices  abstinence,  and  for  this  abstinence 
justly  expects  a  reward.  This  reward  we  call  profit. 
The  expected  profit  is  the  only  motive  for  the  absti- 
nence. He  will  not  be  content  simply  to  get  his 
thousand  dollars  back,  for  that  he  has  now:  he  must 
have  his  thousand  dollars  with  a  profit.  Suppose  A 
to  be  a  manufacturer  of  flax  fabrics,  B  to  be  a  farmer 
in  his  neighborhood,  and  C  an  expert  mechanic  ac- 
quainted with  the  current  modes  of  spinning  and 
weaving  flax.  A  has  a  capital  of  $10,000  invested 
in  his  business,  in  buildings,  machinery,  materials, 
and  wages-fund,  which  nets  him  $1000  a-year  clear 
profit.  At  the  end  of  the  year,  the  question  with 
him  is,  whether  he  shall  spend  this  $1000  unproduc- 
tively  in  immediate  gratifications,  or,  adding  it  to 
his  capital  stock,  increase  his  business  with  it.  If 
he  concludes  to  do  the  latter,  he  must  forego  the  use 
and  enjoyment  of  his  $1000  for  the  present,  he  must 
practise  abstinence  ;  and  this  he  will  not  do,  and 
ought  not  to  do,  except  in  view  of  increased  profits 
to  accrue  from  his  business  at  the  end  of  the  next 
year.  If  more  flax  is  to  be  spun  and  woven  in  his 
factory,  more  money  must  be  invested  to  buy  more 
materials,  to  pay  more  laborers,  or  to  pay  for  more 
or  better  machinery.  His  contribution  to  the  pro- 
spectively increased  production  is  $1000,  transformed 
by  his  intention   from   simple    property  to  capital, 


ON  CAPITAL.  139 

devoted  to  production  by  a  voluntary  abstinence 
from  its  present  use  and  enjoyment,  in  view  of  a 
future  reward  or  profit.  It  is  a  service  rendered  by 
one  man  to  a  joint  process  to  be  performed  by  many, 
and  gives  him  a  just  claim  to  a  portion  of  the  prod- 
uct. Is  exertion  irksome  ?  So  is  abstinence.  Are 
wages  legitimate?  So  are  profits.  B  as  a  farmer 
might  devote  all  his  fields  to  growing  food  and  fruits 
for  the  gratification  of  himself  and  family,  but  since 
A  now  wants  more  flax  fibre  for  his  factory,  he  gives 
up  a  part  of  his  acres  to  growing  flax,  and  this  be-' 
comes  a  part  of  A's  capital  in  the  form  of  raw  ma- 
terial ;  and  the  money  received  for  it  may  become 
capital  in  B's  hands  by  being  spent  either  in  agricul- 
tural improvements,  or  in  buying  additional  land. 
The  mechanic  C,  by  giving  time,  exertion,  and 
money  to  the  work,  may  invent  an  improved  ma- 
chine for  spinning  flax,  to  be  introduced  into  A's 
factory.  •  The  machine  becomes  a  part  of  A's  capital, 
and  the  money  paid  to  C  for  his  machine  is  partly 
wages,  a  reward  for  the  labor  bestowed  on  its  con- 
struction, and  partly  profits,  to  replace  to  C  the 
money  used  in  making  the  machine,  together  with  a 
reward  for  his  abstinence  from  the  use  of  this  money 
until  the  machine  was  sold.  Thus  we  see  that  capi- 
tal, whether  in  the  form  of  wages-fund,  materials,  or 
implements,  is  always  the  result  of  abstinence ;  a,nd 
that  whoever  abstains  from  the  present  enjoyment  of 
anything,  in  order  that  that  something  may  contribute 
to  a  future  production,  renders  an  essential  service  ; 
and,  consequently,  that  the  reward  of  such  absti- 
nence, or  profit,  is  just  as  legitimate  as  are  wages. 
This  is  very  clearly  seen   in  the  common  case  in 


140  ELEMENTS  OF  POLITICAL  ECONOMY. 

which  one  man  loans  capital  to  a  second,  to  be  used 
by  that  second  in  his  own  business.  Brooks  has  a 
thousand  dollars  in  hand  which  he  is  at  liberty 
either  to  enjoy  un productively,  or  to  employ  himself 
productively,  with  the  assurance  of  a  profit ;  but  is 
willing  to  forego  the  use  of  it  for  a  year  in  favor 
of  Smith,  who  is  anxious  to  enlarge  his  business. 
Brooks'  abstinence  is  a  clear  service  to  Smith ;  and 
at  the  end  of  the  year,  therefore.  Smith  not  only 
refunds  the  thousand  dollars  borrowed,  but  also  sun- 
dry other  dollars  besides  as  a  specific  reward  for  this 
specific  service.  If  Smith  keeps  the  money  ten  years 
or  twenty,  it  is  no  more  than  just  that  he  should  pay 
this  sum  every  year  till  the  principal  is  refunded, 
because  the  service  is  every  year  repeated,  the  ab- 
stinence is  still  practised  in  his  favor.  Therefore, 
capital  once  acquired  by  abstinence,  becomes,  if  the 
abstinence  be  continued,  a  legitimate  source  of'  per- 
petual revenue  to  the  owner,  as  well  as  a  perpetual 
source  for  the  maintenance  of  laborers.  Whoever 
transforms  his  property  into  capital,  establishes  there- 
by a  permanent  fund  whence  he  may  draw  an  in- 
come, and  laborers  support,  in  perpetuity;  because 
the  qapital,  though  constantly  disappearing  in  pro- 
duction, as  constantly  reappears  in  products,  with 
profits  added  :  a  fact  which  shows  the  folly  of  the 
popular  opinion  w^hich  regards  more  favorably  the 
man  who  spends  his  money  freely  and  un  produc- 
tively, than  the  man  who,  turning  his  money  into 
capital,  building  a  mill,  or  making  other  permanent 
investments,  creates  by  that  means  a  fund  in  the 
community,  out  of  which  permanent  wages  and 
permanent  profits  can  be  paid.     The  strength  of  the 


ON  CAPITAL.  141 

motives  to  abstinence  in  any  country  will  depend 
largely  upon  the  character  of  the  government,  and 
the  organization  of  society  there ;  these  motives 
being  generally  strongest  where  liberty  of  action, 
equality  of  privileges,  and  security  of  property  are 
the  greatest. 

We  turn  now  to  the  relations  of  capital  to  labor, 
and  to  that  law  of  the  distribution  of  the  products 
between  capitalists  and  laborers,  which  was  first 
promulgated  by  Mr.  Carey,  and  which  of  itself  fully 
justifies  his  claim  to  be  regarded  as  an  important 
contributor  to  the  science  of  Political  Economy.  As 
I  regard  some  of  the  positions  of  Mr.  Carey  as  fun- 
damentally erroneous,  and  shall  freely  animadvert 
on  them  in  that  view,  I  wish  at  this  point  to  bear 
testimony  to  his  great  merit  as  the  original  dis- 
coverer of  the  beautiful  law  of  distribution,  in  the 
light  of  which  the  future  condition  of  the  laboring 
classes  in  all  countries,  if  they  are  only  true  to 
themselves,  seems  hopeful  and  bright.  Capitalists 
are  interested  in  profits,  and  laborers  are  interested 
in  wages  ;  is  there,  then',  as  is  commonly  supposed, 
a  deep-seated  antagonism  between  them  ?  None 
whatever.  No  profits  can  be  realized  unless  labor 
be  united  with  the  capital,  because  it  is  labor  alone 
that  works  up  the  raw  materials,  tends  the  ma- 
chinery, and  disposes  of  the  products.  Capital  not 
united  to  labor  remains  barren,  giving  birth  to  no 
profit,  nay,  itself  commonly  becoming  less.  At  any 
rate,  the  idle  mill  and  hoarded  gold  yield  no  profit. 
Without  the  profit  there  will  be  no  capital ;  since 
no  man  will  practise  abstinence  without  the  hope 
of  a  reward :  but  without  the  labor  there  will  be  no 


142  ELEMENTS  OF  POLITICAL  ECONOMY. 

profit ;  and  therefore  the  very  presence  of  capital  in 
any  community,  constitutes  of  itself  a  demand  for 
labor.  The  more  of  capital  in  any  community,  the 
greater  the  demand  for  laborers,  since  it  is  through 
laborers  alone  that  the  profits  are  realized.  But  the 
greater  the  demand  for  laborers,  the  greater  the  re- 
ward of  labor ;  and,  therefore,  laborers  as  such,  are 
interested  in  nothing  so  much  as  in  the  increase  of 
capital,  and  in  the  strength  of  those  motives  to  ab- 
stinence, out  of  which  capital  springs. 

Capital  must  have  laborers.  Laborers  desire  re- 
munerative employment.  It  is  the  old  case  of  values 
over  again.  Labor  offers  a  service  to  capital,  and 
capital  offers  a  service  to  labor.  They  exchange  to 
the  mutual  advantage  of  both,  and  one  is  as  inde- 
pendent as  the  other.  Hold  up  your  heads,  work- 
men! You  offer  an  honorable  service,  on  which 
capital  is  absolutely  dependent  for  its  existence. 
You  offer  a  service  as  legitimate  and  as  respectable, 
as  that  of  the  clergyman  who  preaches  your  ser- 
mons and  baptizes  your  children,  and  are  paid  on 
precisely  the  same  principles.  Do  not  feel  too  much 
stuck  up  towards  your  workmen,  employers!  The 
money  you  render  them  is  no  whit  better  than  the 
work  they  render  you.  The  exchange  is  honorable, 
and  the  parties  to  it  on  the  same  level  of  advantage. 
They  are  as  necessary  to  you  as  you  are  necessary 
to  them.  As  a  capitalist,  you  cannot  exist  without 
them ;  as  laborers,  they  cannot  exist  without  you. 
You  are  one  blade  of  the  shears,  they  are  the  other 
blade,  and  it  takes  both  blades  to  cut.  It  is  absurd 
to  ask  which  blade  cuts  most,  because  there  is  no 
cutting  at  all,  unless  both  blades  work  together. 


ON  CAPITAL.  143 

More  than  this.  Capital  and  labor  are  not  only 
essential  to  each  other,  but  also  each  is  bettered  by 
the  prosperity  of  the  other.  If  capital  realizes  a 
good  round  rate  per  cent.,  every  capitalist  is  anxious 
to  enlarge  his  business,  whether  as  lender  or  active 
operator,  and  employ  as  much  of  his  wealth  as  pos- 
sible, as  capital.  This  process  increases  capital.  If 
men  constantly  put  their  profits  only  back  into  their 
business,  which,  under  a  high  rate  per  cent.,  they 
will  be  pretty  sure  to  do,  capital  rapidly  increases. 
But  increase  of  capital  is,  in  its  very  nature,  an 
increased  demand  for  laborers.  An  increased  de- 
mand for  laborers,  other  things  being  equal,  infal- 
libly raises  wages ;  just  as  an  increased  demand  for 
anything  else  raises  its  value.  Therefore,  laborers 
are  directly  interested  in  the  prosperity  of  capital, 
because  the  prosperity  of  capital  leads  to  its  in- 
crease, and  its  increase  leads  to  higher  wages.  As 
a  matter  of  fact,  high  profits  and  high  wages,  so  far 
from  being  incompatible,  usually  accompany  each 
other. 

But  is  the  capitalist  equally  interested  in  the  pros- 
perity of  laborers  ?  I  think  so.  That  he  has  to  pay 
high  wages  is  not  necessarily  a  dead  loss  to  him. 
This  is  no  game  of  grab,  in  which  what  one  gains 
another  loses ;  it  is  a  case  of  joint  production,  in 
which  two  parties  conspire,  and  in  which  whatever 
helps  to  enlarge  the  gross  amount  produced,  helps  to 
increase  the  share  falling  to  each  party.  If  then,  as 
they  undoubtedly  do,  high  wages  tend  to  make  the 
workmen  more  intelligent,  industrious,  frugal,  and 
inventive,  they  are  not  a  loss  to  the  capitalist,  but  a 
gain.      Larger   gross    returns    are   thereby    secured. 


144  ELEMENTS  OF  POLITICAL  ECONOMY. 

Improved  intelligence  and  skill  of  workmen  affect 
production,  just  as  improved  machinery,  secured  by 
the  aid  of  capital,  affects  it.  Both  alike  enlarge  the 
aggregate  of  products  to  be  divided  between  capi- 
talist and  laborer.  Now,  in  the  division  of  products 
thus  rendered  larger  in  amount,  what  hinders  capital 
from  getting  a  fair  share  ?  When  a  firm  is  prosper- 
ous, are  not  all  the  partners  benefited  ?  All  that  is 
produced  is  to  be  divided;  if  more  is  produced, 
more  is  to  be  divided.  Intelligent,  industrious,  skil- 
ful workmen,  are  best  for  production,  are  best  for 
the  capitalist,  and  therefore,  high  wages,  which  tend 
to  make  them  so,  and  which  are  a  consequence  of 
their  being  so,  are  to  be  paid  without  grudging. 
"When  the  matter  is  sifted  to  the  bottom,  it  is  seen 
that  capital  is  as  much  interested  in  the  prosperity 
of  labor,  as  labor  is  interested  in  the  prosperity  of 
capital.     All  legitimate  interests  are  in  harmony. 

I  am  now  prepared  to  prove  that  all  increase  of 
capital,  while  it  redounds  to  the  benefit  of  capital- 
ists, redounds  in  a  still  higher  degree  to  the  benefit 
of  laborers.  The  demonstration  is  Mr.  Carey's,  and 
is  the  law  of  distribution  above  referred  to.  The 
proof  is  this.  The  rate  per  cent,  of  profits  invaria- 
bly goes  down  as  a  country  grows  older  and  richer. 
This  is  a  simple  fact  of  history,  which  no  one  will 
dispute.  It  has  been  exemplified  alike  in  ancient 
and  in  modern  times,  so  that  one  is  at  a  loss  whence 
to  take  the  best  examples,  when  all  the  examples  are 
so  good.  In  England,  three  centuries  ago,  the  legal 
rate  of  interest  was  ten  per  cent.,  while  now  the 
average  rate  is  barely  four  in  that  country,  and 
lower  still  in  Holland.     During  the  first  years   of 


0-^  CAPITAL.  145 

mining  operations  in  California,  from  eight  to  fif- 
teen per  cent,  a  month,  with  security  of  real  estate, 
was  paid  for  the  use  of  money,  which  enormous 
rates  have  now  declined  to  rates  not  much  higher 
than  those  paid  in  the  States  along  the  Mississippi 
River,  and  in  these  also  the  rates  are  constantly 
approximating  those  current  in  the  older  Eastern 
States.  It  may  be  assumed,  therefore,  as  an  indis- 
putable fact,  that,  as  capital  increases,  the  rate  per 
cent,  for  its  use  tends  steadily  to  decline ;  but,  while 
less  profit  is  received  on  every  hundred,  there  are 
also  more  hundreds,  and  consequently,  there  is  an 
absolute  gain  to  capitalists  as  a  class,  and  both  an 
absolute  and  relative  gain  to  the  laborers.  Let  us 
take  to  figures.  While  capital  stands  at  $100,000,000, 
let  the  rate  of  profit  be  six;  when  it  rises  to  $500,000,- 
000,  the  rate  goes  down,  say,  to  four.  The  value 
of  the  products  to  be  divided  at  the  end  of  the  year, 
will  be  represented  respectively  by  $106,000,000  and 
$520,000,000.  In  the  first  case,  $6,000,000  is  profits, 
and  $100,000,000  is  wages.  In  the  second  case, 
$20,000,000  is  profits,  and  $500,000,000  is  wages. 
Here  is  an  absolute  gain  to  capitalists.  Profits  have 
gone  up  from  six  to  twenty  millions,  are  more  than 
three  times  as  great  as  before.  But  wages  have  gone 
up  both  absolutely  and  relatively.  They  have  risen 
from  one  hundred  to  five  hundred  millions,  and  are 
Jive  times  as  great  as  before.  Profits  have  risen  in 
the  ratio  of  one  to  three,  but  wages  in  the  ratio  of 
one  to  five.  This  arithmetical  example  is  put  for 
the  sake  of  illustration,  but  the  principle  holds  gbod 
in  every  case  where  the  rate  per  cent,  goes  down 
in  consequence  of  the  increase  of  capital,  and  there- 
10 


146  ELEMENTS  OF  POLITICAL  ECONOMY. 

fore  the  advantages  of  ever  enlarging  capital  are 
even  greater  to  the  laborers  as  a  class  than  to  the 
capitalists  themselves.  Most  assuredly,  if  capital 
now  takes  less  out  of  every  hundred,  more  is  left  to 
labor.  Profits  and  wages  are  reciprocally  the  leav- 
ings of  each  other,  since  the  aggregate  products 
created  by  the  joint  agency  of  capital  and  labor  are 
wholly  to  be  divided  between  them.  This  demon- 
stration is  extremely  important;  for  it  proves  beyond 
a  cavil,  that  the  value  of  labor  tends  constantly  to 
rise,  not  only  as  compared  with  the  value  of  the 
material  commodities  which,  by  the  aid  of  capital, 
it  helps  to  create,  a  truth  we  have  seen  before,  but 
also  as  compared  with  the  value  of  the  use  of  its 
co-partner  capital  itself;  and  therefore,  that  there  is 
inwrought  in  the  very  nature  of  things  a  tendency 
towards  equality  of  condition  among  men.  God 
has  ordered  it  so.  Self-interest  is  indeed  the  main- 
spring of  movement  in  the  economic  world ;  but  no 
man  can  labor  intelligently  and  productively  under 
its  influence,  without  at  the  same  time  benefitting 
the  masses  of  men.  His  very  savings,  productively 
employed,  are  the  poor  man's  wealth. 

It  only  remains  to  speak  of  the  forms  which  capi- 
tal assumes,  and  to  divide  these,  in  general,  into 
circulating  and  fixed  capital.  Circulating  capital 
comprises  all  those  products  which,  in  rendering  aid 
to  further  production,  are  capable  of  but  a  single 
use  in  their  present  form.  Such  are  (1)  all  raw  ma- 
terials ;  (2)  funds  destined  for  wages ;  (3)  products 
on  hand  for  sale,  whose  proceeds  are  destined  as  an 
aid  to  further  production  ;  (4)  products  loaned  or 
rented,  or  retained  for  that  purpose.     Fixed  capital 


ON  CAPITAL.  147 

comprises  all  those  forms  of  capital  which  are  capa- 
ble of  repeated  use  in  the  processes  of  production. 
Such  are,  (1)  all  tools  and  machinery ;  (2)  all  build- 
ings used  for  productive  purposes ;  (3)  all  improve- 
ments upon  land;  (4)  all  investments  in  aid  of 
locomotion,  such  as  railroads,  canals,  ships,  and 
everything  subsidiary  to  these ;  (5)  the  national 
money.  "  The  test  of  fixed  and  circulating  capital 
is  the  inquiry.  Are  returns  secured  by  the  retention, 
or  by  the  transfer,  of  the  particular  product?  Tools 
in  the  hands  of  him  who  uses  them  are  fixed,  in  the 
hands  of  him  who  manufactures  them,  circulating 
capital."  1 

As  civilization  advances,  and  the  aggregate  of  all 
forms  of  capital  enlarges,  there  is  a  tendency  towards 
a  relative  increase  of  fixed  capital,  as  compared  with 
circulating.  There  may,  indeed,  at  times,  be  a  trans- 
formation of  the  one  kind  of  capital  into  the  other, 
too  rapid  for  the  general  interests  of  production,  as 
was  seen  both  in  this  country  and  in  England  about 
the  year  1847,  when  such  an  amount  of  money  was 
permanently  invested  in  railways  and  similar  im- 
provements, as  to  drain  unduly  the  loan  markets  in 
both  countries,  as  to  bring  on  a  commercial  crisis  in 
each,  and  as  greatly  to  depress  the  value  of  these 
permanent  investments,  thus  multiplied  beyond  the 
immediate  wants  of  business,  whose  activity  was 
besides  curtailed  and  disturbed  by  the  necessary  ex- 
penses of  their  construction.  It  has  been  estimated, 
that  at  the  present  time,  the  proportion  of  circu- 
lating capital  to  fixed  in  France,  is  one  to  eight ;  in 

1  Bascom's  Political  Economy,  p.  71. 


148  ELESIENTS  OF  POLITICAL  ECONOMY. 

England,  one  to  three ;  in  the  United  States,  three 
to  five ;  proportions  which  are  believed  to  be  much 
higher  in  favor  of  fixed  capital  than  formerly  ob- 
tained in  those  countries.^ 

1  Carey's  Social  Science,  iii.  56. 


(0-''' 


ON  LAND.  149 


CHAPTER    VIII. 

ON  LAND. 

The  crucial  test  of  a  definition,  a  generalization, 
a  theory,  is  found  in  those  seemingly  anomalous 
cases  with  which  all  science  has  to  do,  and  which 
come  with  such  apparent  reluctance  under  her  pains- 
taking classifications.  If  a  definition  given,  or  a 
generalization  propounded,  reduce  into  order  these 
outlying  cases  without  violence,  as  well  as  cover 
easily  the  more  central  phenomena,  there  is  at  once 
created  a  strong  presumption  of  their  truth.  Does 
it  cover  all  the  cases  ?  Does  it  account  for  all  the 
observed  facts  ?  These  are  tests  of  definitions  and 
of  theories.  The  questions  relating  to  the  value  of 
land  and  of  its  products  have  been  among  the  most 
vexed  questions  of  Political  Economy,  have  exer- 
cised a  vast  amount  of  ingenuity,  have  led  to  careful 
and  commendable  observations  and  investigations 
in  the  whole  field  of  agriculture,  while  the  diverging 
views  that  have  been  taken,  the  arguments  adduced, 
the  conclusions  drawn,  and  the  spirit  manifested, 
in  these  discussions,  iform  the  most  unrefreshing 
portion  of  the  history  of  the  science.  These  ques- 
tions, however  bitterly  debated  in  the  past,  are 
approaching,  even  if  they  have  not  already  reached, 
a  satisfactory  solution.  The  value  of  land  and  of 
the  products  of  land  have  been   almost  uniformly 


150  ELEMENTS  OF  POLITICAL  ECONOMY. 

regarded  in  the  theories  of  wealth  as  anomalous 
matters,  to  which  peculiar  principles  are  applicable, 
and  from  which  certain  conclusions  are  deducible, 
which  color  and  modify  results  and  prospects  in  the 
whole  field  of  value.  Adam  Smith,  Ricardo,  Mc- 
Culloch,  Senior,  and  Mill  hold  substantially  one  set 
of  views  on  land  and  its  rent.  Carey  and  Bastiat 
hold  views  on  that  subject  almost  totally  at  variance 
with  the  English  writers ;  it  seems  to  me  that  the 
means  are  at  hand  for  combining  what  is  true  in 
these  opposing  views  in  a  clear  and  consistent  man- 
ner, and  for  settling  the  dispute.  I  feel  sure  that 
both  parties  are  right  in  many  respects,  and  are 
wrong  in  some  respects,  and  am  not  without  some 
hopes  of  being  able  in  this  chapter  to  reconcile  the 
difference,  and  to  show  that  the  value  of  land  and 
the  rent  of  land  are  not  anomalous  cases  of  value, 
but  arise  from  human  services  rendered  and  ex- 
changed, just  as  all  other  value  arises,  and  vary 
under  the  same  laws  as  vary  all  other  values. 

A  series  of  propositions,  and  discussions  under 
them,  will  bring  out  what  seems  to  be  the  truth  in 
this  whole  matter. 

1st.  Tlie  whole  earth  with  all  its  productive  powers 
was  given  to  men  gratuitously  of  God  under  the  sim- 
ple direction  that  they  replenish  and  subdue  it. 

No  provision  was  made  for  particular  ownership. 
The  whole  earth,  thus  bestowed  without  partiality 
upon  a  whole  race,  had  in  all  its  spontaneous  prod- 
ucts a  great  utility,  but,  for  a  time,  no  value  what- 
ever. The  spontaneous  fruits,  when  gathered  by 
any  person,  might  become  thereby  possessed  of  value 
from  his  effort  expended,  but  to  the  land  itself^  on 


ON  LAND.  151 

which  no  human  efforts  had  been  expended,  the 
idea  of  value  could  not  have  attached.  No  man 
would  have  thought  to  say  to  another  under  such 
circumstances,  This  field  is  mine :  give  me  some- 
thing for  it,  and  you  shall  have  it ;  and  if  he  had, 
that  other  would  not  give  it,  because  such  fields 
were  open  on  every  hand  to  his  occupation  gratis. 
It  is  not  in  human  nature  to  render  anything  for 
something  which  may  be  gratuitously  obtained ; 
value  has  no  place  in  a  sphere  where  everything  is 
free.  But  it  is  well  worth  while  to  notice,  that  under 
God's  command,  the  earth  was  not  only  to  be  re- 
plenished but  subdued.  Under  this  word  subdue, 
and  under  the  work  implied  in  that,  came  in  the  first 
idea  of  ownership  in  land.  When  a  family  com- 
menced this  work  of  subjugation  upon  a  piece  of 
land,  when  they  enclosed  it,  settled  on  it,  tilled  it, 
in  any  w^ay  whatever  improved  it  by  an  expenditure 
of  their  own  toil,  then  first  dawned  upon  their  minds 
the  idea  of  possession,  then  first  began  the  land  to 
be  possessed  of  value,  since  now  the  family  would 
justly  say  to  another.  If  you  want  this  field,  you 
must  give  us  an  equivalent  for  what  we  have  ex- 
pended on  it.  If  the  transfer  took  place,  is  it  not 
very  plain  that  what  was  sold,  was  not  the  inherent 
qualities  of  the  soil,  but  the  services  which  had  now 
been  expended  in  its  amelioration  ?  The  first  family 
received  the  soil  and  its  powers  gratuitously,  and 
then  expended  a  series  of  efforts  on  its  improvement; 
but  a  similar  series  of  efforts  bestowed  on  other  gra- 
tuitous land  in  the  neighborhood  would  make  it  as 
eligible  as  this  now  is ;  if,  therefore,  the  family  in- 
sisted on  more  than  an  equivalent  for  their  exertions 


152  ELEMENTS  OF  POLITICAL  ECONOMY. 

actually  bestowed  on  the  land,  the  other  would  reply, 
For  as  much  labor  as  you  have  given  to  your  land, 
we  can  make  other  free  land  as  good  as  yours,  con- 
sequently we  can  give  you  no  more  than  a  fair  equi- 
valent for  your  efforts.  The  value  therefore  of  the 
parcel  sold,  would  be  determined,  not  by  the  gratu- 
itous elements  involved,  but  by  the  onerous  elements 
involved,  that  is  to  say,  by  the  efforts  already  made 
by  the  first  family  in  connection  with  the  land,  as 
compared  with  the  efforts  of  the  second  involved  in 
the  remuneration  offered.  It  is  not  possible  in  the 
nature  of  things  that  God's  bounty  to  the  whole  race 
should  be  thwarted  by  any  number  of  individuals 
through  exclusive  appropriation  on  their  part  of  this 
bounty.  What  they  received  gratuitously,  they 
must  gratuitously  transmit;  what  they  have  wrought 
of  permanent  improvements  on  the  land,  they  may 
justly  demand  a  recompense  for,  and  can  secure  it. 
By  their  expenditure  of  efforts  they  have  saved  to  the 
purchaser  a  like  expenditure  of  efforts,  and  for  these 
they  can  demand,  and  he  will  be  willing  to  concede, 
a  recompense ;  but  if  they  go  further,  and  demand 
pay  for  the  natural  qualities  of  the  soil  which  God 
gave  and  they  have  not  improved,  for  the  sun  that 
shines,  and  the  rain  that  falls  on  it,  the  demand  is 
blocked  at  once  by  the  common  sense  of  the  pur- 
chaser. He  replies :  There  is  land  enough  in  its 
natural  state,  with  inherent  qualities  as  good  as 
yours,  the  same  sun  shining  on  it,  and  just  as  much 
blessed  rain  falling  on  it,  which  I  can  have  for  noth- 
ing. I  cannot  give  you  something  for  that  which 
costs  you  nothing,  and  which  I  can  get  for  nothing* 
As  long  as  there  is  abundance  of  land  still  open 


ON  LAND.  153 

to  occupation,  everybody  will  concede  that  this  line 
of  argument  is  just,  and  that  the  general  value  of 
land  cannot  rise  above  the  estimated  measure  of  the 
human  efforts  actually  bestowed  on  its  improvement. 
Though  less  obvious  at  first,  the  principle  is  just  as 
true  after  all  the  land  has  been  taken  up.  Improved 
farms  are  always  for  sale  in  every  country,  lands 
once  appropriated  and  ameliorated  are  perpetually 
changing  hands,  and  men  enough  are  always  found 
willing  to  part  with  land,  as  with  everything  else, 
for  what  it  has  cost  them.  If  some  proprietors  are 
unreasonable  enough  to  try  to  intercept  God's  gifts 
bestowed  alike  on  all  the  generations,  and  endeavor 
to  exact  a  price  for  their  land  made  up  of  compensa- 
tion for  what  they  and  their  predecessors  have  done 
upon  it,  together  with  something  added  for  what 
God  has  done  for  it,  their  cupidity  is  instantly 
thwarted  by  the  readiness  of  others  to  dispose  of 
their  land  for  a  fair  equivalent  of  their  onerous  ex- 
ertions. Human  motives  are  such,  and  everything 
is  so  providentially  arranged  in  this  department,  that 
men  cannot  sell  God's  gifts ;  it  would  be  derogatory 
to  the  Giver,  if  they  could. 

What  might  be  thus  inferred  from  the  nature  of 
the  case,  is  abundantly  confirmed  by  facts.  As  a 
matter  of  fact  and  experience,  lands  are  absolutely 
valueless  until  some  portion  of  human  effort  has 
been  expended  on  them,  or  in  reference  to  them. 
They  may  have  utility,  but  they  have  no  value. 
Nobody  will  give  anything  for  them.  The  United 
States  government  has  been  selling  for  years  some 
of  the  best  lands  in  the  world  for  one  dollar  and  a 
quarter  an  ac^re,  and  this  after  the  lands  have  been 


154      ELEMENTS  OF  POLITICAL  ECONOMY. 

surveyed  at  government  expense,  local  governments 
provided  for  the  settlers,  and  mail  facilities  and  other 
privileges  guaranteed  to  them.  The  same  govern- 
ment is  now  giving  away  similar  lands  in  home- 
steads to  actual  settlers,  merely  taking  a  nominal 
fee  for  the  title-deeds,  whose  aggregate  amount  does 
not  begin  to  meet  the  expenses  incurred  in  connec- 
tion with  these  lands.  If  lands  had  value,  indepen- 
dent of  human  exertions,  then  would  the  English 
companies  and  individuals  who  received  grants  in 
the  seventeenth  century  of  vast  tracts  of  as  fertile 
land  on  this  continent  as  the  sun  ever  visited  in  his 
diurnal  revolutions,  have  become  rich  as  Croesus  ; 
but  these  companies  and  individuals  did  not  become 
rich  at  all,  but  rather  poor.  The  amount  realized 
from  the  sale  of  their  lands  fell  far  short  of  reimburs- 
ing the  expenses  of  colonization;  and,  after  incurring 
debts  and  endless  vexations,  most  of  the  companies 
and  proprietors  were  glad  to  be  rid  of  their  lands  at 
any  price.  It  is  a  current  proverb  now  in  regard  to 
wild  lands  at  the  West,  that  the  more  a  man  has  of 
them  the  worse  off  he  is ;  and  it  is  a  maxim  also  in 
the  newer  settlements  everywhere,  that  improved 
lands  are  worth  the  present  value  of  the  improve- 
ments and  no  more.  And  Mr.  Carey  is  at  pains  to 
prove  at  great  length  that  the  value  of  lands  in  all 
old  countries  is  now  vastly  less  than  they  have  cost 
of  actual  human  efforts  in  their  subjugation  and  im- 
provement ;  less,  because  the  progress  of  capital  and 
inventions  enables  similar  work  to  be  done  now  at 
much  less  outlay.  We  conclude,  then,  that  the  value 
of  land  follows  the  law  of  all  other  values ;  that  it 
arises  only  in  connection  with  humarf  efforts ;  that 


ON  LAND.  155 

men  cannot  appropriate  God's  gifts  iji  the  soil,  and 
then  dole  them  out  to  other  men  for  pay ;  that  land 
is  no  monopoly;  that  landed  property,  violence  aside, 
rests  back,  like  all  other  property,  its  ultimate  defence 
upon  the  right  of  making  efforts  for  one's  own  welfare, 
and  of  not  parting  with  these  efforts  except  for  an 
equivalent ;  that  land  and  the  use  of  it  have  value 
because  the  proprietor  can  by  them  render  a  service 
to  somebody  else ;  and  finally  that  the  value  and 
the  rent  of  land  vary,  like  all  other  values,  under  the 
law  of  supply  and  demand. 

2d,  The  powers  of  all  land,  under  more  laborious 
culture,  agricultural  skill  remaining  the  same,  are  sub- 
ject to  the  law  of  diminishing  return;  in  other  words, 
increased  labor  upon  it,  though  increasing  the  aggre- 
gate return  of  produce,  does  not  secure  an  increase 
proportioned  to  the  increase  of  labor. 

This  is  the  fundamental  proposition  on  which 
Ricardo,  and  the  English  writers  generally,  lay  such 
stress,  and  on  which  they  found  the  law  of  Rent,  and 
the  necessity  of  restraints  on  population ;  while 
Carey  and  Bastiat,  impliedly  if  not  expressly,  deny 
the  proposition,  and  of  course,  the  inferences  deduced 
from  it.  In  my  judgment,  the  proposition  cannot 
be  logically  denied.  The  law  of  diminishing  return 
from  land  is  a  law  of  Nature,  and  has  played  a  very 
important  part  in  the  occupation  and  culture  of  suc- 
cessive portions  of  the  earth's  surface.  The  proof 
of  the  proposition  is  all  the  better  for  being  short. 
If  by  doubling  the  labor  on  a  piece  of  land,  double 
the  produce  could  be  secured,  and  by  quadrupling  it, 
quadruple,  and  so  on,  there  would  be  no  reason  why 
any  man  should  ever  cultivate  more  than  a  square 


156  ELEMENTS  OF  POLITICAL  ECONOMY. 

acre,  or  even  a  square  rod.  He  has  a  strong  motive 
to  confine  his  culture  to  a  small  space,  just  so  long 
as  the  amount  of  produce  is  in  the  ratio  of  the  labor 
expended,  because  there  is  less  locomotion  of  tools 
and  fertilizers  and  crops.  The  fact  that  he  extends 
his  culture  from  one  acre  to  another,  and  then  to 
distant  acres,  notwithstanding  the  inconveniences 
and  expense  of  transportation,  is  an  irrefragable 
proof  of  the  proposition  in  question.  Increase  of 
agricultural  labor  and  expenditure  on  a  given  space 
of  land  will  secure  a  larger  amount  of  produce,  but 
as  a  general  law,  the  increased  amount  will  not  be 
proportioned  to  the  increased  expenditure.  If  it 
were  thus  proportioned,  if  the  law  of  diminishing 
return  did  not  exist,  then,  for  purposes  of  agricul- 
tural production,  a  square  acre  is  as  good  as  a  con- 
tinent. 

It  is  through  this  law  of  diminishing  return,  that 
the  Creator  has  secured  the  gradual  occupation  by- 
men  of  almost  the  whole  earth.  There  is  a  strong 
tendency  to  leave  the  old  acres  to  advance  upon 
new,  the  old  countries  to  emigrate  to  new,  when- 
ever the  returns  begin  to  bear  a  inore  unfavorable 
ratio  to  the  labor  bestowed.  The  farmer  will  ad- 
vance from  the  first  to  the  second  acre  as  soon  as 
he  thinks  that  more  produce  can  be  obtained  from  it 
by  a  given  amount  of  labor  than  can  be  got  by  a 
like  expenditure  of  additional  labor  upon  the  first 
acre,  allowance  being  made  for  the  increased  incon- 
venience ;  and  so,  cultivation  has  gradually  extended 
Itself,  and  men  have  become  dispersed  over  the  whole 
earth.  Other  principles  leading  to  dispersion  have 
undoubtedly  cooperated,  but  this  is  the  fundamental 


ON  LAND.  157 

one,  operative  at  all  times,  changing  the  course  of 
population,  and  consequently  of  empire. 

Mr.  Carey  seems  to  think  that  this  proposition  is 
dependent  on  another,  and  endeavors  to  break  down 
this  by  an  attempt  to  break  down  that  other.  That 
other  proposition  is,  that  in  the  course  of  occupation 
the  best  lands  are  entered  upon  first,  and  that  after- 
wards recourse  is  had  to  the  poorer  soils.  He  at- 
tempts to  prove  that  the  exact  reverse  of  this  is  the 
historical  fact,  that  cultivation  has  always  been 
begun  upon  the  poorer  soils,  and  that  afterwards 
the  river  bottoms  and  strong  lands  have  been  drained 
and  cleared  and  tilled.  This  discussion,  however 
interesting  in  itself,  is  irrelevant  as  far  as  the  law  of 
diminishing  returns  is  concerned,  because  that  law 
is  nowise  dependent  on  the  order  in  which  soils  of 
different  productive  power  are  entered  upon  in  cul- 
tivation; it  is  true  of  all  soils,  whether  rich  or  poor, 
whether  entered  upon  in  the  order  of  their  fertility, 
or  in  the  inverse  order ;  and  I  cannot  help  thinking 
that  Mr.  Carey  puts  upon  this  matter  of  the  order 
of  occupation,  which  he  asserts  has*  always  been 
from  the  poorer  to  the  richer  soils,  an  estimation 
altogether  disproportioned  to  its  importance.  When- 
ever men  have  entered  upon  new  countries,  they 
have  undoubtedly  selected  those  lands  first  which 
seemed  to  them  most  eligible,  reference  being  had 
of  course  to  their  present  means  of  subduing  them  ; 
and  whether  these  lands  proved  ultimately  to  be 
better  or  worse  than  other  parcels  which  they  might 
have  chosen,  is  a  point,  which,  however  determined, 
has  no  effect  to  disturb  the  fundamental  proposition 
in  hand. 


158  ELEMENTS  OF  POLITICAL  ECONOMY. 

Sd,  The  operation  of  the  law  of  diminishing  returns 
is  retarded  by  all  improvements  in  agriculture. 

The  discovery  of  new  and  more  available  fertil- 
izers, the  invention  of  better  agricultural  implements, 
the  light  thrown  by  chemistry  upon  agriculture,  the 
consequent  adoption  of  better  methods  of  culture 
^  and  rotation  of  crops,  the  more  perfect  adaptation 
to  the  various  soils  of  the  kinds  of  produce  sought 
to  be  raised  from  them,  all  these  and  similar  im- 
provements tend  to  increase  the  ratio  of  the  produce 
to  the  labor,  and  disguise  the  law  just  established. 
The  lands  that  are  now  under  cultivation  may  be 
made,  under  more  skilful  modes  of  culture,  to  yield 
indefinitely  more  than  at  present,  and  the  vast  still 
uncultivated  lands  of  the  world  may  come  to  render 
an  incalculable  quantity  of  food  to  the  world's  pop- 
ulation ;  but  yet,  as  improvements  are  naturally 
less  continuous  in  this  than  in  some  other  depart- 
ments of  production,  as  invention  has  less  play,  as 
there  is  less  opportunity  for  the  division  and  cooper- 
ation of  labor,  as  nothing  can  materially  shorten  the 
time  during  which  the  fruits  of  the  earth  must  ripen, 
the  value  of  agricultural  products  tends  to  rise  rela- 
tively to  manufactured  products  generally.  Labor,  for 
a  reason  already  given,  and  produce,  for  the  reasons 
now  given,  have  risen  and  tend  steadily  to  rise,  as 
estimated  in  general  commodities. 

^th.  The  rent  of  land  is  the  measure  of  the  service 
which  the  owner  renders  to  the  actual  cultivator,  and 
does  not  differ  essentially  in  its  nature  from  the  rent 
of  buildings  in  cities,  or  from  the  interest  of  money, 

Mr.  Ricardo's  famous  doctrine  of  rent,  is  for  sub- 
stance, this :  there  are  some  lands  in  every  country 


ON  LAND.  159 

whose  produce  just  repays  the  expenses  of  cultiva- 
tion, and  consequently  yields  no  margin  for  rent; 
and  the  cost  of  production  on  these  rentless  and 
poorest  lands  under  cultivation,  will  determine  the 
price  of  the  produce  ;  and  as  there  can  be  but  one 
price  in  the  same  market,  the  produce  raised  on  more 
fertile  lands  will  be  sold  for  the  same  price,  and  this 
price,  besides  paying  the  cost  of  production,  will 
yield  a  rent  rising  higher  according  as  the  land  is 
more  fertile  ;  so  that  the  rent  paid  on  any  land  is 
always  a  measure  of  the  excess  of  productiveness 
of  that  land  over  the  least  productive  land  under 
paying  cultivation ;  and  therefore,  an  increased  de- 
mand for  food  in  consequence  of  increased  popu- 
lation, and  the  higher  price  resulting,  will  force 
cultivation  down  upon  still  poorer  soils,  or  else 
compel  a  higher  culture  for  less  remunerative  returns 
on  the  old  soils,  according  to  the  law  of  diminishing 
returns,  which  in  either  case  will  raise  the  rents  on 
all  the  soils  above  that  grade  that  just  repays  the 
expenses  of  cultivation,  and  no  more ;  so  that  it  is 
the  sole  interest  of  landlords,  as  such,  that  popula- 
tion should  be  dense  and  food  high,  their  interest 
being  directly  antagonistic  to  that  of  the  other 
classes  of  community. 

This  very  ingenious  and  complicated  theory,  which 
is  supported  by  mafiy  other  authoritative  names  be- 
sides that  of  its  author,  is  too  mechanical  and  rigid 
to  be  applied  to  any  existing  state  of  facts.  There 
is  much  truth  in  it,  and  some  error ;  and  I  believe 
that  a  few  simple  statements  will  embody  the  truth 
and  eliminate  the  error.  It  is  not  true  that  there  is 
but  one  price  in  the  same  market ;  prices  vary  in  the 


160  ELEMENTS   OF  POLITICAL  ECONOMY. 

same  market,  and  are  shifting  perpetually  in  all 
markets.  Produce  is  not  always  sold  for  money, 
but  is  frequently  exchanged  directly  against  other 
commodities  and  services.  The  theory  makes  no 
allowance  for  the  food  imported,  or  which  may  be 
imported,  from  abroad.  As  I  understand  it,  the 
whole  truth  in  regard  to  rent  is  nearly  this  :  Land  is 
an  instrument  for  certain  productive  purposes;  has 
been  prepared  to  answer  these  purposes  by  human 
efforts.  These  efforts  only  are  to  be  remunerated  from 
the  use  of  the  instrument;  if  the  owner  allows  another 
the  use  of  it,  he  justly  demands  a  recompense  for 
the  use  of  an  instrument  which  has  cost  him  efforts ; 
this  recompense  is  rent ;  it  is  the  reward  of  a  service 
rendered,  just  as  profit  is;  there  is  no  gauge  by 
which  to  measure  the  amount  of  rent  except  the 
degree  of  service  rendered ;  this  is  very  variable  in 
lands,  owing  to  various  causes,  such  as  proximity  to 
markets,  natural  fertility,  state  of  improvements,  and 
so  on  ;  the  rent  of  land  then  depends  on  the  quality 
and  situation  of  the  instrument ;  it  differs  nowise  in 
principle  from  the  rent  of  other  instruments  which 
are  wholly  made  by  labor ;  the  range  of  landed  rents 
is  up  and  down,  a  quite  extended  scale,  simply  be- 
cause, from  accidental  causes,  the  service  which  the 
owner  is  in  position  to  render  the  lessee  varies 
greatly  ;  the  rent  of  mines  and  of  oil  lands  presents 
no  new  principle  ;  the  right  to  rent  stands  on  ground 
as  unassailable  as  the  right  to  wages  and  to  profits ; 
rent  partakes  of  the  nature  of  both  these  two ;  and 
varies,  just  as  they  do,  under  the  action  of  supply 
and  demand. 

6th.  That  division  of  land  is  best  for  purposes  of 


ON  LAND.  161 

production^  which  gives  farms  approximate li/  equal  in 
size  to  the  cultivators  ;  and  the  best  tenure  is  the  fee' 
simple. 

Taking  the  last  part  of  the  proposition  first,  the 
fee-simple  is  better  for  production  than  any  other 
tenure,  because  when  one  owns  the  land  he  tills,  he 
takes  a  greater  interest  in  it,  it  is  his  own,  be  has  a 
constant  motive  to  improve  it,  to  make  the  produc- 
tion from  it  as  great  as  possible,  since  all  it  pro- 
duces is  his  own.  If  men  work  from  motives,  and 
if  the  energy  and  persistence  of  the  work  be  propor- 
tioned to  the  constancy  and  press  of  the  motives, 
then  will  the  fee-simple  most  certainly  make  the 
aggregate  of  produce  greater  than  any  other  tenure 
of  land.  Moreover  the  fee-simple  immeasurably 
improves  the  character  of  the  cultivators.  The 
masses  of  men  are  educated  and  developed  by 
nothing  so  much  as  by  the  ownership  of  land.  It 
tends  to  make  them  industrious,  thrifty,  indepen- 
dent, hopeful  of  the  future,  anxious  to  give  their 
children  better  privileges,  as  well  as  better  lands, 
than  they  themselves  had.  The  testimony  on  this 
point  is  abundant  from  many  countries,  and  it  all 
goes  to  show  that  the  peasant  proprietor  is  a  hap- 
pier and  more  virtuous,  as  well  as  a  more  industri- 
ous and  productive  man,  than  the  mere  tenant  and 
farm-laborer;  while  similar  testimony,  as  well  as 
common  observation,  proves,  that  lands  under  the 
copyhold  tenure,  or  leased  at  will,  are  far  infe- 
rior in  point  of  improvements  and  production,  to 
contiguous  lands  held  in  fee-simple.  The  zeal  of 
absolute  ownership,  especially  if  it  be  a  limited 
ownership,  has  been  observed  to  produce  almost 
11 


162  ELEMENTS  OF  POLITICAL  ECONOMY. 

magical  effects,  as  well  upon  character  as  upon 
lands,  transforming  after  a  while  the  poorest  into 
excellent  lands,  and  thriftless  and  desponding  labor- 
ers into  frugal  and  enterprising  proprietors. 

The  practical  play  of  the  fee-simple  draws  after 
it  such  a  division  of  lands  into  farms  moderately 
large  and  approximately  equal,  as  can  be  shown  to 
be  most  favorable  to  the  largest  aggregate  produc- 
tion. Wherever  there  is  no  primogeniture  and  no 
entails,  and  owners  can  consequently  sell  a  part  or 
all  their  lands,  whenever  it  is  their  interest  to  do  so, 
lands  naturally  fall  into  those  hands  which  are  most 
capable  of  using  them  productively,  because  such 
persons  can  afford  to  pay  more  for  them  than  any- 
body else;  and  the  division  that  follows  this  impulse 
of  self-interest  and  this  freedom  of  exchange  is 
likely  to  be  into  farms  tolerably  equal  in  extent  and 
moderately  large.  Such  a  division  has  naturally 
taken  place  in  New  England,  in  the  Middle  States, 
and  at  the  West;  while  in  the  South,  the  institution 
of  slavery  led  to  the  system  of  large  plantations 
and  few  land-owners,  which  system,  I  believe,  will 
now,  under  the  auspices  of  freedom,  give  way  to  the 
better  system  of  small  farms  and  numerous  proprie- 
tors. That  the  latter  system  is  more  profitable  in 
reference  to  production,  as  well  as  advantageous  in 
point  of  national  character  and  a  broadly  based  and 
sound  development  of  the  national  resources,  is  evi- 
dent from  a  few  considerations,  and  has  been  exem- 
plified distinctly  in  the  diverse  experience  in  this 
respect  of  France  and  England.  1.  When  the 
mass  of  the  agricultural  population  are  owners  of 
the  soU  they  till,  the  motives  to   productive  culti- 


ON  LAND.  163 

vation  are  brought  to  bear  most  universally.  These 
motives  are  interest  and  hope.  There  is  a  high 
pleasure  in  possession,  an.d  in  self-guided  exertion, 
a  strong  stimulus  to  get  as  much  as  possible  from 
the  land,  and  at  the  same  tirne  to  keep  good  and 
ever  improve  its  condition.  When  the  great  body 
of  the  land  of  any  country  comes  under  the  action 
of  such  motives  as  these,  then  will  the  amount  of 
production  be  the  greatest.  2.  Dr.  Franklin  used  to 
say  that  the  best  manure  for  the  land  was  the  foot 
of  the  owner ;  and  wherever  the  system  of  small 
farms  prevails,  there  will  be  the  most  of  what  is 
so  essential  to  successful  farming,  the  personal  su- 
pervision and  exertion  of  the  owners.  Personal 
supervision,  to  be  most  effective,  must  be  limited  in 
its  sphere  ;  and  the  best  agricultural  knowledge  and 
skill  becomes  comparatively  weak  when  it  attempts 
to  exhibit  itself  on  too  broad  a  surface.  Because  a 
man  can  cultivate  one  hundred  acres  better  than  any 
of  his  neighbors,  it  does  not  prove  that  he  will  cul- 
tivate fifty  acres  additional  to  them  better  than  a 
neighbor  of  inferior  skill,  who  is  the  owner  of  those 
fifty  and  no  more.  3.  The  possession  of  small  free- 
holds educates  and  gives  energy  to  the  masses. 
That  educates  a  man  which  calls  forth  varied  efforts 
of  intelligence  and  will.  To  protect  and  advance 
his  own  interests,  to  attend  upon  the  seasons,  to 
watch  and  wait,  to  foresee  and  plan  and  labor,  all 
this  will  secure  that  a  nation  of  freeholders  will 
never  be  a  nation  of  ignorant,  indolent  barbarians. 
4.  National  strength  is  best  secured  and  main- 
tained wherever  there  is  a  broad  basis  of  indepen- 
dent veomanry  to  lean  back  upon  when  heavy  taxes 


164  ELEMENTS  OF  POLITICAL  ECONOMY. 

are  to  be  raised  and  strong  blows  of  battle  are  to  be 
struck  in  behalf  of  the  nation. 

France  and  England  are  instructive  examples  in 
this  whole  matter.  In  France,  since  the  abolition 
of  all  entails  and  primogenital  rights  by  the  revolu- 
tion of  1789,  and  under  the  action  of  the  law  requir- 
ing the  equal  partition  of  a  man's  landed  estate 
among  his  children,  the  lands  have  become  subdi- 
vided into  small  parcels,  averaging  perhaps  from  ten 
to  thirty  acres,  and  out  of  a  population  of  about 
37,000,000,  nearly  6,000,000  are  proprietors  of  land, 
either  in  town  or  country.  Undoubtedly  more  than 
half  of  the  total  population  of  France  belong  to 
families  which  own  some  portion  of  the  soil.  As  we 
should  expect  from  the  considerations  already  urged, 
the  results  of  this  division  have  been  most  happy  in 
all  respects ;  in  point  of  the  increase  of  agricultural 
products,  the  statistics  show  an  annual  average  in- 
crease, from  1813  to  1840,  of  1,000,000  francs ;  in 
point  of  an  industrious,  frugal,  cheerful  peasantry; 
in  point  of  a  very  general  desire  and  ability  to  pur- 
chase land ;  in  point  of  showing  that  subdivision 
ceases  as  soon  as  the  lands,  if  divided  further,  would 
be  less  profitable  in  production ;  in  point  of  pauper- 
ism ;  in  point  of  national  strength  and  weight,  in 
spite  of  a  centralized  and  repressive  government;  the 
results  of  such  division  of  the  lands  have  been  such 
as  we  should  expect,  and  such  as  we  should  wish.  In 
England,  on  the  other  hand,  the  monster-farm  system 
prevails,  the  small  proprietors  have  mostly  disappeared, 
the  law  of  entails  and  leases  ties  up  the  landed  estates 
from  sale  and  division,  about  2000  persons  own  one 
third  of  all  the  lands  in  England,  Scotland,  and  Ire- 


ON  LAND. 


165 


land,  five  noblemen  own  about  one  fourth  of  all 
Scotland,  and  the  total  number  of  all  proprietors  of 
land  in  the  three  kingdoms  will  not  reach  50,000,  in 
a  population  of  28,000,000.  The  results  are  seen, 
in  part,  in  what  has  been  justly  called  the  irretrievable 
helotism  of  the  laboring  classes ;  in  an  annual  poor 
rate,  raised  by  taxation,  of  over  $42,000,000  ;  in  un- 
measured inequality  in  fortunes  and  comforts;  in 
the  lack,  felt  alike  in  war  and  peace,  of  a  large  class 
of  sturdy  yeomanry,  the  strength  of  a  State ;  and  in 
a  consequent  sinking  of  relative  position,  power  and 
influence,  former  times  being  held  up  with  the  pres- 
ent, as  compared  with  France  and  the  other  first- 
class  powers.  No  degree  of  merit  in  the  other  parts 
of  the  English  system,  can  ever  compensate  the 
want  of  just  and  broadly  liberal  laws  of  land. 


166  ELEMENTS  OF  POLITICAL  ECONOMY. 


CHAPTER  IX. 

ON  COST  OF  PRODUCTION. 

We  are  now  in  position  to  be  able  to  analyze  the 
cost  of  production,  and  to  bring  forward  some  sup- 
plementary matters  relating  to  value,  which  could 
not  be  properly  discussed,  until  the  subjects  of  labor, 
capital,  and  land,  were,  at  least  in  their  ground  prin- 
ciples, understood.  While  we  were  inquiring,  in  the 
chapter  on  value,  whether  such  ^  thing  as  a  measure 
of  value  were  possible,  it  was  remarked  that  some 
political  economists  have  thought  that  the  cost  of 
production  of  any  commodity  is  the  most  accurate 
measure  of  its  general  purchasing-power ;  and  it 
might  have  been  added,  that  these  writers  consider 
that  there  is  such  a  thing  as  natural  value  distinct 
from  market  value,  that  natural  value  is  the  cost  of 
production,  and  that  market  value  oscillates  perpetu- 
ally around  that,  and  tends  constantly  to  return  to  it. 
How  far  these  views  are  just,  how  far  cost  of  pro- 
duction constitutes  a  law  of  value  within  the  all- 
comprehending  law  of  demand  and  supply,  is  the 
point  to  which  attention  is  now  directed. 

It  is  noticeable,  that  while  almost  all  people  put 
forth  onerous  efforts  to  satisfy  the  present  and  imme- 
diately prospective  wants  of  other  people,  in  view  of 
receiving  back  from  them  corresponding  efforts  to 
satisfy  their  own  present  and  immediately  prospec- 


ON  COST  OF  PRODUCTION.  167 

tive  wants,  there  are  some  people,  who  have  both 
foresight  and  capital,  who  set  to  work  to  make 
preparations  in  reference  to  services  which  they  ex- 
pect to  render  some  time  in  the  future ;  and  it  is 
evident  that  this  matter  of  the  cost  of  production 
has  an  especial  bearing  upon  those  classes  of  pro- 
duction in  which  permanent  investments  are  made, 
looking  to  future  rather  than  to  present  exchanges. 
It  becomes  necessary  to  attend  to  cost  of  production 
simply  because  cost  of  production  is  sometimes  an 
exact  measure  of  one  of  the  elements  out  of  which 
value  springs,  namely,  the  element  of  effort.  When 
a  surgeon,  for  example,  charges  fifty  dollars  for  cut- 
ting off  a  man's  leg,  cost  of  production  is  an  imper- 
tinent phrase  in  relation  to  such  a  service,  and  is  no 
measure  of  the  effort ;  but  when  a  capitalist  invests 
$20,000  in  a  cutlery  establishment,  hires  all  his 
labor,  and  at  the  end  of  the  year  has  produced  5000 
knives,  cost  of  production  has  a  definite  meaning  as 
applied  to  each  one  of  the  knives,  and  is  an  accu- 
rate measure  of  the  one  element  of  effort,  which 
goes,  together  with  other  elements,  to  determine  its 
value.  It  is  not  true  at  all  that  cost  of  production 
alone  determines  the  value  of  the  knife,  or  is  a  meas- 
ure of  the  value  of  the  knife,  but  it  is  true  that,  in 
this  case,  and  in  all  cases  in  which  a  commodity  is 
produced  by  a  definite  capital  invested  for  a  fixed 
time,  and  by  labor  wholly  hired,  or  estimated  as 
hired,  the  cost  of  production  is  an  exact  measure  of 
one  of  the  four  elements  which  go  to  determine 
value,  namely,  of  one  effort.  Now  let  us  suppose 
that  when  these  knives  are  exposed  for  sale,  no  such 
return  efforts  are  offered  for  them  as  are  estimated 


168      ELEMENTS  OF  POLITICAL  ECONOMY. 

by  the  maker  as  compensatory  and  remunerative. 
He  may,  in  order  to  avoid  a  still  greater  loss,  sell 
his  knives  below  the  cost  of  their  production,  but  it 
is  evident  that  he  will  not  go  forward  at  present  in 
his  enterprise  of  making  knives.  He  will  suspend 
operations,  or  withdraw  from  the  business ;  and  his 
action  in  this  respect  will  affect  the  supply  of  knives 
to  lessen  it;  and  the  next  equalization  of  demand 
and  supply  will  be  likely  to  adjust  a  market  value 
more  favorable  to  knife-makers.  Or  if,  when  the 
knives  are  exposed  for  sale,  they  meet  with  an  ex- 
change at  very  remunerative  rates,  our  capitalist  is 
now  stimulated  to  increase  his  production,  to  put  back 
his  profits  into  his  business,  and  perhaps  to  invest  in 
it  additional  principal.  His  action  in  this  respect  will 
affect  the  supply  of  knives  to  increase  it;  and  the 
next  equalization  of  demand  and  supply,  or  if  not 
the  next,  some  subsequent  one,  will  be  likely  to  ad- 
just a  new  market  value  less  favorable  to  knife- 
makers.  Thus  it  is  seen,  that  absolute  cost  of 
production  influences  value  not  directly,  but  re- 
motely, through  its  influence  on  supply.  To  sup- 
pose and  to  say  that  the  cost  of  production  of  one 
commodity  determines  its  value  in  an  exchange  with 
another,  is  to  perpetuate  the  old  mistake  of  ignoring 
the  second  commodity,  is  to  reiterate  the  fallacy  that 
value  is  an  independent  quality  of  one  thing,  is  to 
confuse  the  whole  subject  of  value.  When  the 
writers  referred  to  speak  of  the  "natural  value" 
of  any  commodity,  they  mean  its  absolute  cost  of 
production  ;  but,  at  this  stage  of  our  inquiry,  it 
surely  cannot  be  necessary  to  repeat  the  thought 
already  so  often   expressed    in    substance,  that    an 


ON  COST  OF  PRODUCTION.  169 

analysis  of  one  component  part  falls  far  short  of  de- 
termining the  resultant  of  four  component  parts.  I 
do  not  think  the  expression  "  natural  value  "  is  cal- 
culated to  be  useful.  From  the  very  meaning  of  the 
word  "  value,"  if  it  is  to  have  any  consistent  mean- 
ing at  all,  there  can  be  no  other  kind  of  value  than 
market  value,  that  is,  value  in  exchange. 

But  while  all  this  will  doubtless  be  conceded  to 
be  just,  there  are  other  points  of  view  in  which  the 
cost  of  production  of  any  commodity  comes  to  be  a 
very  important  matter.  From  its  obvious  relations  to 
supply,  already  exemplified,  it  is  constantly,  though 
indirectly,  influencing  the  value  of  the  commodity 
itself;  and  in  respect  to  permanent  investments, 
looking  solely  to  future  production,  it  becomes  the 
main  inquiry ;  because,  while  the  cost  of  production 
can  never  determine  the  purchasing-power  of  the 
product,  it  is  always  one  element  in  determining  it; 
and  also,  especially,  because  the  improvements  which 
are  all  the  time  being  introduced  into  the  mechani- 
cal and  other  processes  of  such  production,  which 
improvements  always  tend  to  lessen  the  cost  of  the 
product,  have  the  efiect  to  lessen  the  value  of  all 
permanent  investments,  unless  similar  improvements 
be  inaugurated  in  connection  with  them.  The  march 
of  improvement  is  so  constant,  that  old  machinery 
and  old  processes  are  rapidly  depreciated ;  and  a 
calculated  cost  of  future  production  in  one  establish- 
ment is  almost  sure  to  be  disturbed  by  new  labor- 
saving  inventions  in  other  similar  establishments, 
which  will  be  able  in  consequence  to  offer  the  com- 
modity at  a  lower  rate  than  the  rate  estimated; 
in  which  case  the  value  of  the  product  will  not  con- 


f^^ 


170  ELEMENTS  OF  POLITICAL  ECONOMY. 

form  to  the  estimated  or  even  actual  cost  of  produc- 
tion in  that  establishment,  but  will  pitilessly  fall  to 
the  point  at  which  similar  commodities  are  offered 
by  the  more  fortunate  producers.  For  these  reasons 
we  must  inquire  carefully  after  the  elements  of  cost 
of  production. 

These  elements  are  two :  cost  of  labor,  and  cost 
of  capital.  These  are  the  only  onerous  elements 
that  enter  into  production.  Assisting  the  processes 
are,  indeed,  the  natural  powers  of  land,  water,  wind, 
steam,  electricity,  and  so  on,  but  as  these  are  always 
gratuitous,  they  form  no  element  of  cost.  Labor 
must  have  its  wages,  and  capital  must  have  its 
profits,  and  also  a  sinking-fund  from  which  to 
replace  the  original  capital  when  worn  out  or  ex- 
pended. It  will  be  in  vain  to  search  for  any  other 
ingredient  of  cost  than  these  two. 

1.  By  cost  of  labor  is  meant,  of  course,  its  cost 
to  the  employer,  and  not  to  the  laborer  himself, 
in  reference  to  whom  the  phrase  would  have  no 
definite  meaning.  Now,  if  we  make  an  exhaustive 
analysis  of  the  cost  of  labor  to  the  employer,  we 
shall  find  that  there  are  three  things,  and  only  three 
things,  that  go  to  determine  its  cost.  1.  Efficiency 
of  the  labor.  2.  The  rate  of  nominal  wages  paid. 
3.  The  cost  of  that  in  which  the  wages  are  paid. 
To  illustrate  each  of  these  in  order: — If  a  capitalist 
hires  two  men  to  work  for  him  at  the  same  rate  of 
wages,  and  if  the  one  is  twice  as  efficient  a  laborer 
as  the  other,  the  cost  of  his  labor  to  the  capitalist  is 
one  half  less  than  the  cost  of  the  other's  labor.  The 
first  element  of  the  cost  of  labor  is  its  efficiency.  If 
a  capitalist,  accustomed  to  pay  one  dollar  a  day,  is 


ON  COST  OF  PRODUCTION.  171 

now  obliged  to  pay  one  dollar  and  a  half  a  day  to 
his  laborers,  their  efficiency  remaining  the  same,  the 
cost  of  labor  to  him  is  just  one  half  increased.  The 
second  element  is  nominal  wages.  If  that  com- 
modity, whether  money  or  other,  in  which  wages 
are  paid,  varies  in  cost  to  the  capitalist,  the  cost  of 
the  labor  compensated  by  that  commodity,  nominal 
wages  and  efficiency  remaining  the  same,  is  varied 
thereby  of  course.  We  shall  discover  in  the  next 
chapter  that  the  value  of  money  is  by  no  means 
invariable,  as  we  have  already  learned  the  variable 
nature  of  all  other  values,  and  accordingly  the  third 
element  of  cost  of  labor  is  the  cost  of  that  in  which 
the  labor  is  paid.  It  is  easy  to  see  that  there  is 
nothing  else,  aside  from  these  three  things,  that  can 
ever  affect  the  cost  of  labor.  This  analysis  is  not 
given  here  for  its  own  sake  merely,  but  for  some 
ulterior  purposes,  of  which  the  first  is  to  show,  how 
various  are  the  ingredients  that  enter  into  the  com- 
putation which  men  ought  rationally  to  make  before 
engaging  in  extended  enterprises  of  production. 
They  must  make  calculations  on  the  prospective 
cost  of  production,  since  that  is  one  element  that 
will  determine  the  value  of  their  future  product.  In 
doing  this  they  must  calculate  the  cost  of  labor,  and 
the  cost  of  capital;  and  the  cost  of  labor  alone 
involves,  as  we  have  just  seen,  three  variables,  no 
one  of  which  can  be  safely  neglected  in  the  sup- 
posed estimation. 

The  second  purpose  is  to  explain  from  the  analy- 
sis, that  a  great  diversity  of  nominal  wages  may 
exist  in  different  countries  without  necessarily  affect- 
ing the  cost  of  labor.     If  English  wages,  for  exam- 


172  ELEMENTS  OF  POLITICAL  ECONOMY. 

pie,  are,  nominally,  one  half  wages  in  the  United 
States,  it  is  very  poor  logic  to  jump  to  the  conclu- 
sion, that  the  cost  of  labor  in  England  is  one  half 
less  than  in  the  United  States.  That  will  depend 
partly  on  the  efficiency  of  the  labor,  and  partly  on 
the  cost  of  that  in  which  the  respective  labor  is  paid. 
If  English  laborers  are  only  one  half  as  efficient  as 
American  laborers,  then  a  difference  of  one  half  in 
nominal  wages,  cost  of  money  in  the  two  countries 
being  the  same,  will  occasion  no  difference  at  all 
in  cost  of  labor.  Because  nominal  wages  in  Eng- 
land are  lower  than  with  us,  many  people  think  and 
maintain,  that  the  English  have  an  advantage  over 
us,  whereas  it  is  notorious,  and  admitted  even  by 
themselves,  that  American  labor  is  more  efficient 
than  English  labor,  and  therefore  there  is  no  such 
difference  in  cost  of  labor  as  the  difference  in  nom- 
inal wages  would  indicate,  even  if  there  be  any 
difference  in  cost  of  labor  at  all.  Just  at  this  point 
great  confusion  has  existed  in  the  popular  mind,  and 
some  by  no  means  harmless  fallacies  are  still  current, 
arising  from  the  want  of  a  due  analysis  of  the  cost 
of  labor.  It  is  probable,  all  the  elements  being 
allowed  for,  that  the  cost  of  labor  in  one  country  is 
not  very  widely  different  from  its  cost  in  other  coun- 
tries ;  because,  if  there  were  much  difference,  there 
would  be  a  greater  difference  than  is  actually  ob- 
served in  the  rate  per  cent,  of  capital;  and  this  con- 
clusion is  strengthened,  when  it  is  remembered,  that 
in  those  countries  in  which  the  cost  of  labor  is  sup- 
posed to  be  low,  as  in  England,  the  rate  per  cent,  of 
capital  is  also  low ;  and  in  those  countries,  as  the 
United  States,  in  which  the  cost  of  labor  is  sup- 


ON  COST  OF  PRODUCTION.  173 

posed  to  be  high,  the  rate  per  cent,  is  also  high. 
Before  leaving  this  point,  I  wish  to  remove  one  or 
two  causes  of  misapprehension,  which  have  fre- 
quently infected  discussions  of  wages.  The  terms 
"high  and  low  wages,"  are  often  used  ambiguously; 
some  meaning  by  the  words,  a  high  or  low  nominal 
rate ;  others,  a  high  or  low  degree  of  comforts  en- 
joyed by  the  laborers,  as  the  fruit  of  their  wages ; 
others,  still,  as  Ricardo,  using  the  words  high  and 
low  in  relation  only  to  profits,  in  which  last  sense, 
if  wages  are  high,  profits  are  low,  and  conversely. 
In  the  first  two  senses,  wages  and  profits  may  both 
be  high,  or  both  be  low,  at  the  same  time  and  place, 
but  not  in  the  last  sense.  When  the  first  sense  is 
meant,  the  expression  should  be  money  wages;  when 
the  second,  real  ivages;  when  the  third,  relative 
wages.  Had  this  nomenclature  been  adopted  and 
consistently  employed,  many  an  angry  dispute  and 
many  a  false  conclusion  would  have  been  avoided. 
Also,  it  has  been  thought  by  some,  that  high  money 
wages  create  high  prices  of  commodities,  that  is  to 
say,  that  things  are  dear  because  laborers  have  been 
paid  a  high  price  for  their  agency  in  producing  them. 
This  does  not  follow.  Their  labor  may  be  very 
efficient,  and  may  be  assisted  by  first-rate  machinery, 
and  the  price  of  the  commodities  may  be  low, 
although  the  money  wages  may  be  high.  Money 
wages  must  not  be  confounded  with  cost  of  labor, 
because  it  is  only  one  element  of  cost  of  labor.  A 
higher  cost  of  labor  in  any  department  of  produc- 
tion, other  things  being  equal,  will  tend  to  raise  the 
price  of  the  product,  but  not  higher  money  wages 
alone.     Price  is  value  expressed  in  money,  and  geri' 


174  ELEMENTS  OF  POLITICAL  ECONOMY. 

eral  rise  or  fall  of  prices  is  usually  due  to  changes 
in  the  currency.  An  inflated  currency  produces 
universally  high  prices,  as  well  of  labor  as  of  com- 
modities, and  for  the  same  reason  of  labor  as  of 
commodities,  and  it  is  a  superficial  view  which 
supposes,  that,  of  these  two  effects  of  a  common 
cause,  one  is  a  cause  of  the  other.  On  the  other 
hand  it  is  sometimes  supposed,  that  the  exact  re- 
verse of  this  takes  place,  and  that  money  wages 
become  high  simply  because  the  commodities  which 
the  laborers  consume  have  become  high.  This  is 
an  error  similar  to  the  other.  If  an  inflation  of  the 
volume  of  the  current  money  of  the  country  has 
supervened,  then  the  price  of  labor  rises  by  the  same 
impulse  that  carries  up  the  price  of  commodities. 
Both  are  effects ;  neither  is  the  cause  of  the  other. 
But  if  the  currency  has  remained  sound  and  stable, 
a  high  price  of  any  of  the  commodities  consumed 
by  the  laborers,  has  no  tendency,  that  I  can  perceive, 
to  raise  the  rate  of  money  wages.  The  higher 
price  of  those  commodities  may  have  arisen  from 
deficient  harvests,  or  from  a  higher  cost  of  labor  in 
those  departments,  from  inequality  of  taxation,  or 
other  similar  causes;  but  no  one  of  these  enables 
capital  to  share  the  gross  proceeds  of  production  on 
better  terms  with  labor.  Neither  money,  nor  real, 
nor  relative  wages  can  rise,  as  I  see,  merely  from 
high  prices  of  the  commodities  which  the  laborers 
consume.  It  seems  to  me,  accordingly,  that  much 
clear  light  is  thrown  from  this  analysis  of  the  cost  of 
labor  upon  the  whole  vexed  question  of  wages. 

The  third  ulterior  purpose  of  presenting  this  an- 
alysis is  briefly  to  unfold  the  principles  according  to 


ON  COST  OF  PRODUCTION.  175 

which  the  division  between  wages  and  profits  is 
practically  made.  It  was  Mr.  DeQuincy  who  first 
called  profits  the  leavings  of  wages ;  but  this  is  only 
true  when  by  wages  is  meant  the  cost  of  labor.  The 
gross  products  created  by  the  combined  action  of 
capital  and  labor  belong  in  common  to  the  capital- 
ists and  laborers,  and  are  to  be  divided  between  them 
in  some  way,  and  the  analysis  in  question  enables 
us  to  perceive  just  how  they  are  divided.  Cost  of 
labor  being  deducted,  the  rest  goes  to  capital  as  a 
matter  of  course,  and  the  proportion  of  this  part  to 
the  whole  capital  determines  the  rate  per  cent,  of 
profit.  If  this  part  falling  to  capital  is  large  for 
every  hundred  invested,  the  rate  per  cent,  is  high ;  if 
small,  low.  The  efficiency  of  labor  and  the  state  of 
the  currency  being  as  before,  a  rise  of  money  wages 
will  lessen  profits,  but  no  rise  of  money  wages  ac- 
companying increased  efficiency  of  labor,  or  result- 
ing from  inflated  currency,  has  a  tendency  to  lessen' 
profits  at  all.  The  capitalist  as  such  is  interested  in 
having  cost  of  labor  low,  but  not  in  low  money 
wages  necessarily,  because  a  low  cost  of  labor  is 
consistent  with  high  money  wages,  and  with  high 
real  wages  too.  Very  efficient  labor  may  be  very 
highly  paid,  and  yet  leave  to  capital  a  high  rate  per 
cent.  We  here  see  again  from  another  stand-point, 
and  from  a  deeper  view,  a  truth  we  have  seen  before, 
that  there  is  no  real  antagonism  but  a  real  harmony 
of  interests  between  capitalists  and  laborers.  Both 
are  alike  interested  in  the  combined  efficiency  of 
capital  and  labor,  that  is  to  say,  in  the  amount  of 
gross  products  created ;  and,  in  respect  to  the  divis- 
ion of  this  gross  amount,  there  is  no  more  collision 


176  ELEMENTS  OF  POLITICAL  ECONOMY. 

of  interest  than  in  making  the  dividends  of  the  year 
among  the  partners  of  a  commercial  house.  The 
cost  of  labor  must  first  be  defrayed ;  and  this  de- 
pends on  its  efficiency,  its  nominal  rate  of  remunera- 
tion, and  the  present  purchasing-power  of  money. 
What  is  left  is  gross  profits,  and  the  relation  that 
this  bears  to  the  whole  capital  invested  decides  the 
rate  per  cent.     So  far  of  cost  of  labor. 

2.  The  second  element  in  the  cost  of  production 
is  the  cost  of  capital ;  and  this  also  must  be  analyzed 
into  three  variables,  no  one  of  which  can  be  safely 
neglected  in  a  computation  which  has  for  its  object  to 
decide  a  prospective  cost  of  production  :  —  1st,  The 
rate  per  cent. ;  2d,  The  time  for  which  the  capital  is 
advanced ;  3d,  The  form  of  the  capital  as  liable  to 
slow  or  rapid  deterioration.  We  must  look  at  the 
influence  of  each  of  these  elements  on  cost  of  pro- 
duction. 

(1.)  Let  us  suppose  that  the  rate  p*^r  cent,  at  Am- 
sterdam is  3,  and  the  rate  at  New  York  is  7,  that 
the  cost  of  labor  is  equal  in  the  two  cities,  that  the 
time  of  advance  is  one  year,  and  that  there  is  no 
liability  of  the  capital  to  wear  out ;  a  commodity 
made  at  Amsterdam  with  an  outlay  of  $100  can  be 
sold  for  $103,  while  the  same  commodity  made  at 
New  York  with  the  same  outlay  cannot  be  sold  for 
less  than  $107.  The  current  rate  per  cent,  is  one 
element  of  the  cost  of  capital,  and  through  this,  of 
the  cost  of  production. 

(2.)  The  effect  of  the  time  of  advance  on  cost  of 
capital  is  more  striking.  Let  the  same  supposition 
be  continued,  except  that  the  time  of  advance  in 
New  York  be  extended  to  four  years.      The  com- 


ON  COST  OF  PRODUCTION.  177 

modity  will  sell  in  Amsterdam,  as  before,  at  $103, 
but  ill  New  York  for  not  less  than  $131.  This 
principle  is  well  illustrated  also  in  the  case  of  wine, 
which  to  reach  its  perfection  requires  to  be  kept  a 
number  of  years.  Even  under  the  same  rate  per 
cent,  which  we  will  suppose  6,  a  commodity  made 
in  six  months  with  an  outlay  of  $100  may  sell  for 
$103;  while  wine  grown  in  the  same  six  months 
at  the  same  outlay,  kept  five  years,  cannot  be  sold 
without  loss  for  less  than  $133.  If  the  period  of 
advance  be  long,  and  the  rate  per  cent,  be  high,  the 
cost  of  capital  from  the  two  qauses  enhances  enor- 
mously the  cost  of  the  product ;  so  that,  it  is  only 
countries  like  England  and  Holland,  in  which  the 
rate  per  cent,  is  very  low,  which  can  successfully 
engage  in  enterprises  requiring  a  large  capital  to  be 
invested  for  long  periods  before  returns  are  realized. 
This  accounts  for  the  fact  that  mining  operations  in 
Mexico  and  South  America  have  been  largely  carried 
on  by  foreign  rather  than  American  capital.  One 
million  of  Dutch  capital  at  three  per  cent.,  expecting 
to  realize  returns  only  after  twenty  years,  will  be 
remunerated  by  a  product  selling  for  $1,806,111 ;  but 
under  like  circumstances,  American  capital  at  seven 
per  cent.,  must  have  a  return  of  $3,869,685,  or  lose. 

(3.)  Most  forms  of  capital,  especially  that  invested 
in  buildings,  machinery,  and  the  like,  more  or  less 
rapidly  wear  out,  and  a  sinking-fund  must  be  re- 
served from  gross  profits  in  order  to  replace  the  prin- 
cipal. This  is  the  third  element  in  cost  of  capital, 
and  through  this  cost,  influences  the  cost  of  produc- 
tion, and  through  cost  of  production,  affects,  in  the 
manner  already  pointed  out,  the  value  of  the  prod- 

12 


178  ELEMENTS  OF  POLITICAL  ECONOMY. 

uct.  Suppose  there  are  two  commodities  A  and  B 
produced  in  two  establishments,  in  each  of  which  is 
invested  a  capital  of  $11,000,  in  one  of  which  is  a 
machine  costing  $1000,  which  is  wholly  worn  out  by 
one  year's  use,  and  in  the  other  a  machine  costing 
the  same  sum,  which  will  last  however  for  ten  years. 
Let  the  rate  per  cent,  be  ten,  and  the  time  consumed 
in  completing  the  products  be  one  year.  There  is  a 
difference  in  the  cost  of  capital  in  the  two  establish- 
ments, and  this  difference  indirectly  but  immediately 
appears  in  the  value  of  the  respective  products.  To 
A  must  be  charged  not  only  $1100,  the  interest  on 
the  capital  at  the  current  rate,  but  also  another 
$1000,  wherewith  to  replace  the  machine  already 
worn  out  by  the  year's  production.  A  cannot  be 
sold  without  loss  for  less  than  $2100.  B  however 
will  cost  less.  To  it  must  be  charged,  as  before, 
$1100,  current  rate  of  profit  on  the  capital  invested, 
and  only  $100  to  replace  after  ten  years'  use  the 
machine'.  B  therefore  can  permanently  sell  without 
loss  for  $1200. 

Now,  then,  if  my  readers  are  willing  to  follow  me 
a  little  further  along  this  dry  and  dusty  road,  we 
shall  be  able  to  draw  some  important  conclusions  in 
respect  to  value  as  depending  on  wages  and  profits. 
While  we  have  been  seeming  to  attend  to  only  one 
of  the  four  elements  out  of  which  value  springs, 
namely,  one  effort,  of  which  cost  of  production  is 
always  an  exact  measure  whenever  the  effort  is  em- 
bodied in  a  commodity  made  jointly  by  paid  labor 
and  ca'pital,  we  have  really  been  attending  to  the 
other  effort  also  whenever  that  effort  is  similarly 
embodied;   and   since  gold  and   silver  money  is  a 


ON  COST  OF  PRODUCTIOIT.  179 

commodity,  like  any  other,  we  have  incidentally,  in 
this  analysis  of  cost  of  production,  taken  some  steps 
towards  determining  the  value  of  money.  Now, 
cost  of  production  is  made  up  of  cost  of  labor  and 
cost  of  capital,  and  the  first  general  conclusion  is, 
that  if  the  cost  of  labor  for  any  reason  be  enhanced, 
nothing  can  prevent  this  higher  cost  from  taking 
effect  and  exhibiting  itself  in  lower  profits.  The 
second  conclusion  is,  that  money-wages,  or  any  rise 
or  fall  of  them,  provided  they  are  uniform,  or  uni- 
formly rise  and  fall,  in  those  departments  of  produc- 
tion whose  commodities  exchange  with  each  other, 
have  no  effect  at  all  upon  value,  since  they  are  com- 
mon factors  in  two  costs  of  production,  and  like  all 
common  factors,  cancel  each  other;  but  any  inequal- 
ity of  money- wages  in  these  departments  that  affects 
the  cost  of  labor,  will  have  an  indirect  but  controlling 
influence  on  the  value  of  the  commodities.  The 
same  is  true  of  profits.  So  far  as  the  rat^  per  cent, 
is  common  to  all  branches  of  production,  the  capital 
advanced  for  the  same  period,  with  a  similar  risk  of 
deterioration  or  loss,  and  so  far  as  any  one  or  all  of 
these  advance  or  recede  uniformly  and  together,  they 
do  not  affect  the  value  of  any  of  the  commodities 
produced.  But  inequality  in  any  one  of  these  points, 
varies  the  re»lative  cost  of  capital,  and  consequently, 
the  cost  of  production,  and  consequently  the  value 
of  the  product.  It  is  at  this  point  precisely  that 
there  is  opened  up  to  us  a  clear  view  of  the  influence 
of  machinery  upon  values.  So  far  as  machinery 
brings  into  play,  as  it  always  does,  a  gratuitous 
natural  force,  it  is  outside  the  pale  of  value ;  but 
since  the  machinery  itself  is  one  important  form  of 


180  ELEMENTS  OF  POLITICAL  ECONOMY. 

capital  on  which  rate  per  cent,  must  be  paid,  the 
more  machinery  employed  relatively  to  labor  in  the 
production  of  commodities,  the  more  do  profits  enter 
into  the  cost  of  production,  and  the  more  powerfully 
do  changes  in  the  rate  per  cent.,  in  the  time  of  ad- 
vance, and  in  the  risk  of  deterioration,  tell  upon  the 
value  of  commodities  so  produced,  as  estimated  in 
other  commodities.  This  whole  matter  is  exceed- 
ingly well  put  by  Mr.  Mill  in  the  fourth  chapter  of 
his  third  book,  and  I  shall  here  enrich  my  own  pages 
by  transcribing  two  or  three  paragraphs  from  his.    . 

"  All  commodities  made  by  machinery  are  assimilated,  at  least 
approximatively,  to  the  wine  in  the  preceding  example.  In  com- 
parison with  things  made  wholly  by  immediate  labor,  profits  enter 
more  largely  into  their  cost  of  production.  Suppose  two  com- 
modities A  and  B,  each  requiring  a  year  for  its  production,  by 
means  of  a  capital,  which  we  will  on  this  occasion  denote  by 
money,  and  suppose  to  be  £1000.  A  is  made  wholly  by  immedi- 
ate labor,  the  whole  £1000  being  expended  directly  in  wages. 
B  is  made  by  means  of  labor  which  cost  £500,  and  a  machine 
which  cost  £500,  and  the  machine  is  worn  out  by  one  year's  use. 
The  two  commodities  will  be  of  exactly  of  the  same  value;  i  which, 
if  computed  in  money,  and  if  profits  are  twenty  per  cent,  per 
annum,  will  be  £1200.  But  of  this  £1200,  in  the  case  of  A, 
only  £200,  or  one  sixth,  is  profit ;  while  in  the  case  of  B  there  is 
not  only  the  £200,  but  as  much  of  £500,  (the  price  of  the  ma- 
chine,) as  consisted  of  the  profits  of  the  machine-maker ;  which, 
if  we  suppose  the  machine  also  to  have  taken  a  year  for  its  pro- 
duction, is  again  one  sixth.  So  that  in  the  case  of  A  only  one 
sixth  of  the  entire  return  is  profit,  whilst  in  B  the  element  of 
profit  is  not  only  a  sixth  of  the  whole,  but  an  additional  sixth  of  a 
large  part. 

"  The  greater  the  proportion  of  the  whole  capital  which  con- 
sists  of  machinery,  or  buildings,  or  material,  or  anything  else 

1  Better ;  the  two  commodities  have  exactly  the  same  cost  of  produc- 
tion. 


ON  COST  OF  PRODUCTION.  181 

which  must  be  provided  before  the  immediate  labor  can  commence, 
the  more  largely  will  profits  enter  into  cost  of  production.  It  is 
equally  true,  though  not  so  obvious  at  first  sight,  that  greater 
durability  in  the  portion  of  capital  which  consists  of  machinery  or 
buildings,  has  precisely  the  same  effect  as  a  greater  amount  of  it. 
As  we  have  just  supposed  one  extreme  case,  that  of  a  machine 
wholly  worn  out  by  a  year's  use,  let  us  now  suppose  the  opposite 
and  still  more  extreme  case,  of  a  machine  which  lasts  forever,  and 
requires  no  repairs.  In  this  case,  which  is  as  well  suited  for  the 
purpose  of  an  illustration  as  if  it  were  a  possible  one,  it  will  be 
unnecessary  that  the  manufacturer  should  ever  be  repaid  the  £500 
which  he  gave  for  the  machine,  since  he  has  always  the  machine 
itself  worth  £500  ;  but  he  must  be  paid  as  before  a  profit  on  it, 
The  commodity  B  therefore,  which  in  the  case  previously  supposed 
was  sold  for  £1200,  of  which  sum  £1000  were  to  replace  the 
capital,  and  £200  were  profit,  can  now  be  sold  for  £700,  being 
£500  to  replace  wages,  and  £200  profit  on  the  entire  capital. 
Profit,  therefore,  enters  into  the  value  of  B  in  the  ratio  of  £200 
out  of  £  700,  being  two  sevenths  of  the  whole,  or  28^  per  cent., 
while  in  tlie  case  of  A,  as  before,  it  enters  only  in  the  ratio  of  one 
sixth,  or  1 6|  per  cent.  The  case  is  of  course  purely  ideal,  since 
no  machinery  or  other  fixed  capital  lasts  forever ;  but  the  more 
durable  it  is,  the  nearer  it  approaches  this  ideal  case,  and  the  more 
largely  does  profit  enter  into  the  return.  If  for  instance,  a  ma- 
chine worth  £500  loses  one  fifth  of  its  value  by  one  year's  use, 
£100  must  be  added  to  the  return  to  make  up  this  loss,  and  the 
price  of  the  commodity  will  be  £800.  Profit,  therefore,  will  enter 
into  it  in  the  ratio  of  £200  to  £800,  or  one  fourth,  which  is  still  a 
much  higher  proportion  than  one  sixth,  or  £200  to  £1200,  as  in 
case  of  A. 

"  From  the  unequal  proportion  in  which  in  diflTerent  employ- 
ments profits  enter  into  the  advances  of  the  capitalist,  and  there- 
fore into  the  returns  required  by  him,  two  consequences  follow 
in  regard  to  value.  One  is,  that  commodities  do  not  exchange 
in  the  ratio  simply  of  the  quantities  of  labor  required  to  produce 
them,  not  even  if  we  allow  for  the  unequal  rates  at  which  differ- 
ent kinds  of  labor  are  permanently  remunerated.  Suppose  as  be- 
fore an  article  A  made  by  £1000  worth  of  immediate  labor.  But 
instead  of  B  made  by  £500  worth  of  immediate  labor,  and  a  ma- 
chine worth  £500,  let  us  suppose  C,  made  by  £500  worth  of  imme- 


182  ELEMENTS  OF  POLITICAL  ECONOMY. 

diate  labor  by  the  aid  of  a  machine  which  has  been  produced  by 
another  £500  worth  of  immediate  labor ;  the  machine  requiring  a 
year  for  making,  and  worn  out  by  a  year's  use  ;  profits  being  as 
before  twenty  per  cent.  A  and  C  are  made  by  equal  quantities 
of  labor,  paid  at  the  same  rate;  A  costs  £1000  worth  of  direct 
labor ;  C  only  £500  wortli,  which  however  is  made  up  to  £1000 
by  the  labor  expended  in  the  construction  of  the  machine.  If 
labor,  or  its  remuneration,  were  the  sole  ingredient  of  cost  of 
production,  these  two  things  would  exchange  for  one  another. 
But  will  they  do  so  ?  Certainly  not.  The  machine  having  been 
made  in  a  year  by  an  outlay  of  £500,  and  profits  being  at  twenty 
per  cent.,  the  natural  price  of  the  machine  is  £600;  making  an 
additional  £lOO,  which  must  be  advanced  over  and  above  his 
other  expenses,  by  the  manufacturer  of  C,  and  repaid  to  him  with 
a  profit  of  twenty  per  cent.  While  therefore  the  commodity  A 
is  sold  for  £1200,  C  cannot  be  permanently  sold  for  less  than 
£1320. 

"  A  second  consequence  is  that  every  rise  or  fall  of  general 
profits  will  have  an  effect  on  values.  Not  indeed  by  raising  or 
lowering  them  generally,  (which  is  a  contradiction  and  impossi- 
bility,) but  by  altering  the  proportion  in  which  the  values  of  things 
are  affected  by  the  unequal  lengths  of  time  for  which  profit  is  due. 
When  two  things,  though  made  by  equal  labor,  are  of  unequal 
value  because  the  one  is  called  upon  to  yield  profit  for  a  greater 
number  of  years  or  months  than  the  other,  this  difference  of  value 
will  be  greater  when  profits  are  greater,  and  less  when  they  are 
less.  The  wine  which  has  to  yield  five  years'  profit  more  than  the 
cloth,  will  surpass  it  in  value,  and  much  more  if  profits  are  forty 
per  cent.,  than  if  they  were  only  twenty.  The  commodities  A 
and  C,  which,  though  made  by  equal  quantities  of  labor,  were  sold 
for  £1200  and  £1320,  a  difference  of  ten  per  cent.,  would,  if 
profits  had  been  only  half  as  much,  have  been  sold  for  £1100  and 
£1155,  a  difference  of  only  five  per  cent.  It  follows  fi-om  this 
that  even  a  general  rise  of  wages,  when  it  involves  a  real  increase 
in  the  cost  of  labor,  does  in  some  degree  influence  values.  It  does 
not  affect  them  in  the  manner  vulgarly  supposed,  by  raising  them 
universally.  But  an  increase  of  the  cost  of  labor  lowers  profits ; 
and,  therefore,  lowers  in  natural  value  the  things  into  which 
profits  enter  in  a  greater  proportion  than  the  average,  and  raises 
those  into  which  they  enter  in  a  less  proportion  than  the  average. 


ON  COST   OF  PRODUCTION.  183 

All  commodities  in  the  production  of  which  machinery  bears  a 
large  part,  especially  if  the  machinery  is  very  durable,  are  lowered 
in  their  relative  value  when  profits  fall ;  or,  what  is  equivalent, 
other  things  are  raised  in  value  relatively  to  them." 

In  other  words,  the  more,  or  the  more  durable  the 
machinery  in  the  production  of  a  commodity,  the 
larger  the  element  of  profit  in  the  price  now  abso- 
lutely reduced ;  on  a  rise  of  the  rate  per  cent,  there- 
fore, the  value  of  the  commodity  made  by  more  or 
more  durable  machinery  will  relatively  rise. 

Having  traced  completely  the  influence  of  ma- 
chinery on  profits,  a  few  things  must  now  be  said  on 
its  influence  upon  wages.  Formerly  the  prejudice 
was  almost  universal,  and  is  still  wide-spread  in 
many  parts  of  the  world,  that  the  general  introduc- 
tion of  labor-saving  appliances  does  an  injury  to  the 
laborers  by  taking  away  their  work.  So  strongly 
has  this  been  felt  by  tke  laborers,  that  in  England, 
and  especially  in  Ireland,  mobs  and  riots  have  usu- 
ally accompanied  the  introduction  of  machinery  into 
those  departments  of  production  in  which  hand-work 
had  previously  prevailed.  If  work  were  what  labor- 
ers really  wanted,  the  prejudice  in  question  would 
cease  to  be  such,  and  become  a  sound  opinion;  since 
the  only  object  and  result  of  introducing  machinery 
is  to  lessen  work,  at  least  with  reference  to  a  given 
product ;  and  the  laborers,  to  be  consistent,  should 
not  stop  with  opposing  new  inventions,  but  should 
destroy  all  forms  of  existing  capital,  that  there  might 
be  work  a  plenty  for  simple  human  hands.  What 
the  laborers  really  want,  however,  is  not  work,  but 
wages,  or  rather,  those  commodities  for  which  their 
wages  are  expended ;  and  the  question  is,  whether 


184  ELEMENTS  OF  POLITICAL  ECONOaiY. 

labor-saving  processes  tend  to  lessen,  not  work,  but 
work's  remuneration.  There  is  no  form  of  proof 
that  I  know  of,  which  amounts  to  a  moral  demonstra- 
tion that  the  substitution  of  machinery  for  labor  can- 
not lessen  the  laborer's  wages;  the  opposite  has  per 
haps  sometimes  happened,  and  is  possibly  liable  to 
happen,  especially  in  agriculture,  in  certain  transitory 
states  of  society.  But  the  general  appeal  can  be 
made  to  experience  with  all  safety.  As  a  matter  of 
fact  and  experience,  it  has  not  been  found  true  that 
the  introduction  of  improved  processes,  the  substitu- 
tion of  Nature's  forces  for  human  muscle,  has  deteri- 
orated the  condition  of  laborers  in  those  departments 
into  which  the  inventions  have  been  brought,  or  the 
condition  of  laborers  generally.  Exactly  the  reverse 
has  usually  taken  place ;  and  wages  are  apt  to  be 
highest  rather  than  lowest  in  connection  with  the 
most  and  the  most  durable  machinery,  and  higher 
rather  than  lower,  after  the  introduction  of  more  and 
better  machinery.  Operatives  in  manufactories,  for 
instance,  are,  as  a  rule,  better  paid  than  farm  labor- 
ers; and  better  paid  in  the  first  class  than  in  the 
inferior  establishments.  Teamsters,  in  this  country 
at  least,  and  I  suspect  in  all  countries,  are  as  well  to 
do  as  before  the  construction  of  railroads.  So  of 
spinners,  weavers,  and  artisans  of  every  name.  In 
explanation  of  these  general  facts,  it  may  be  noticed, 
(1)  that  labor  is  always  required  in  the  construction 
and  repairs  of  all  kinds  of  labor-saving  appliances, 
and  so  far  forth,  a  new  market  for  labor  is  opened 
up  in  place  of  any  loss  of  market  possibly  resulting 
from  their  introduction  ;  (2)  these  forms  of  capital 
always  tend  to   cheapen   the  products  which   they 


ON  COST  OF  PRODUCTION".  185 

help  to  create,  and  such  products  because  they  are 
cheap  find  a  wider  circle  of  consumers,  and  more 
must  be  produced  to  supply  a  now  broader  rtiarket, 
and  so  far  forth  the  demand  for  labor  may  be  strong- 
er than  it  was  before ;  (3)  These  improvements 
cheapen  also  the  commodities  consumed  by  the 
laborers  themselves,  and  therefore  a  given  rate  of 
wages  now  secures  for  them  a  higher  grade  of  com- 
forts. Combining  these  observations  with  the  law 
of  distribution  already  pointed  out,  and  the  conclu- 
sion is  fairly  established  that  the  effect  of  machinery 
is,  and  will  be,  rather  favorable  than  otherwise  to 
the  laboring  classes. 

Now,  as  a  result  of  this  entire  discussion,  atten- 
tion must  be  called  to  a  generalization,  which  has 
been  more  or  less  fully  noticed  by  several  writers, 
and  with  the  presentation  of  which,  this  branch  of 
the  subject  will  be  concluded.  Since,  by  the  aid  of 
the  different  forms  of  capital,  and  such  a  division  of 
labor  as  that  every  part  of  it  is  made  most  efficient, 
the  cost  of  production  of  most  kinds  of  manufac- 
tured articles  tends  to  decline  as  compared  with  the 
cost  of  production  of  food  and  raw  materials,  in 
whose  production  these  advantages  are  less  perfectly 
attainable,  there  is  a  constant  tendency  towards 
approximation  in  the  value,  and,  if  money  remain 
unchanged,  in  the  price,  of  raw  materials  and  of 
finished  products  ;  and  in  the  degree  of  this  approx- 
imation will  be  found  a  gauge  of  the  success  with 
which  gratuitous  natural  forces  and  improved  facili- 
ties of  art  have  been  made  available  in  production. 
This  single  statement,  clearly  perceived  in  its 
grounds,  grasps  and  holds  the  principal  results  of 


\ 


186  ELEMENTS  OF  POLITICAL  ECONOMY. 

our  discussions  thus  far.  Examples  of  the  principle 
offer  themselves  on  every  hand.  Let  us  look  at 
cotton  cloth  ;  an  example  somewhat  marred  at  the 
present  moment  by  the  consequences  of  the  existing 
war,  and  disguised  by  a  depreciated  currency ;  but 
which,  allowance  being  made  for  these,  is  an  excel- 
lent illustration.  At  the  opening  of  this  century, 
the  average  price  of  raw  cotton  was  just  about 
twenty  cents  a  pound  ;  at  the  middle  of  the  century, 
and  onwards,  the  average  price  w^as  just  about  ten 
cents  a  pound.  At  the  first  period,  although  accu- 
rate tables  are  wanting,  the  average  price  of  cotton 
cloth  could  not  have  been  less  than  sixty  cents  a 
yard ;  at  the  second  period,  it  could  hardly  have  been 
more  than  ten  cents  a  yard.  The  absolute  price  of 
raw  cotton  diminished  in  the  interval  in  the  ratio  of 
2  to  1 ;  while  the  absolute  price  of  cotton  cloth 
diminished  in  the  interval  in  the  ratio  of  6  to  1. 
Relatively  to  a  yard  of  finished  cloth,  the  raw  mate- 
rial greatly  rose  in  value,  since  at  the  first  it  took 
three  pounds  to  buy  a  yard,  and  at  the  last  but  one 
pound.  There  was  a  marked  approximation  all  the 
while  of  the  price  of  the  finished  product  towards 
the  price  of  the  raw  material ;  in  other  words,  less 
and  less  difference  of  price  was  due  to  the  cost  of 
manufacture,  which  lessening  cost  marks  the  ever- 
increasing  efficiency  in  the  production  of  commodi- 
ties of  the  gratuitous  powers  of  Nature  applied 
through  machinery.  According  to  Dr.  Ure,  the  in- 
troduction of  machinery  into  the  manufacture  of 
lace,  lessened  the  cost  of  that  product  in  the  ratio  of 
50  to  1 ;  and  thereby,  and  to  that  degree,  approxi- 
mated the  price  of  a  pound  of  such  lace  towards  the 


ON  COST  OF  PRODUCTION.  187 

price  of  a  pound  of  the  cotton  from  which  it  was 
made.  Food,  raw  materials,  and  labor,  and  the  last 
more  than  the  other  two,  tend  steadily  to  advance  in 
their  power  to  command,  that  is,  to  buy,  most  kinds 
of  finished  products ;  and  therefore,  the  millions  who 
labor  with  their  hands,  and  the  other  millions  who 
own  the  soil  and  till  it,  have  already  advanced,  and 
will  still  more  advance,  in  a  scale  of  comforts,  with 
the  advancing  centuries. 


188  ELEMENTS  OF  POLITICAL  ECONOMY. 


CHAPTER  X. 

ON  MONEY. 

There  is  no  use  in  saying  that  money  is  such  a 
mysterious  and  complicated  agent  that  nobody  can 
understand  it.  That  is  the  language  of  indolence. 
Money  is  wholly  a  matter  of  man's  device ;  it  was 
invented,  just  as  any  other  instrument  is  invented, 
to  accomplish  a  certain  purpose;  and  it  would  be 
strange  if  men  cannot  comprehend  what  men  them- 
selves have  devised.  In  all  departments  of  God's 
works,  indeed,  we  constantly  meet  with  what  can- 
not be  fully  comprehended  nor  perfectly  fathomed, 
because  an  infinite  mind  has  been  there  at  work 
upon  an  infinite  plan.  But  there  is  no  such  profun- 
dity in  the  works  of  men ;  unfathomableness  is  not 
an  attribute  of  human  skill ;  and  since  money  is  an 
instrument  devised  by  men  to  aid  them  in  accom- 
plishing a  certain  purpose,  it  is  as  unreasonable  to 
pretend  that  it  is  incomprehensible,  as  it  would  be 
to  pretend  that  the  steam-engine  is  incomprehen- 
sible. I  hold  it  for  certain  that  whatever  men  have 
devised,  men  can  comprehend. 

The  general  purposes  which  money  was  designed 
to  answer,  and  which  it  is  found  admirably  to  fulfil, 
are  best  perceived  under  the  supposition  that  there 
were  no  money.  Exchanges  begun,  and  were  profit- 
able, long  before  money  came  into  existence.     Men 


ON  MONEY.  189 

first  exchanged  services  directly  for  each  other,  with- 
out the  intervention  of  any  medium.  This  form  of 
trade  is  called  Barter.  Hiram,  king  of  Tyre,  fur- 
nished to  Solomon  a  certain  quantity  of  cedars  from 
Lebanon,  and  Solomon,  in  return,  furnished  the  Tyr- 
ians  a  certain  quantity  of  wheat  and  oil.  This  may 
serve  as  an  instance  of  barter,  although  money  had 
been  in  current  use  long  previously  to  that  transac- 
tion, as  is  seen  in  the  purchase  by  Abraham  of  the 
cave  and  field  of  Machpelah,  for  which  he  weighed 
out  four  hundred  shekels  of  silver,  current  money 
with  the  merchant.  It  is  obvious,  however,  that 
while  barter  is  a  great  deal  better  than  no  exchanges 
at  all,  there  are  inherent  difficulties  in  that  form  of 
exchange.  Under  pure  barter,  exchanges  are  pretty 
much  limited  to  those  parties  each  of  whom  is  in 
position  to  render  to  the  other  such  services,  and  in 
such  quantities,  as  the  other  stands  in  direct  and  im- 
mediate need  of;  it  is  not  enough,  under  these  con- 
ditions, that  a  man  should  have  a  service  to  sell,  but 
also  he  must  find  a  man  who  wants  that  specific 
service,  and  more  than  this,  a  man  who  not  only 
wants  that  specific  service,  but  also  has  a  service  to 
render  in  return,  such  as  the  first  man  wants.  If  A 
has  wheat  which  he  wishes  to  exchange  for  a  coat, 
he  must  find  a  party  who  wants  w^heat,  and  who 
also  is  in  position  to  render  a  coat  in  exchange  for 
it,  and  moreover  who  wants  just  as  much  wheat  as 
will  pay  for  a  coat,  no  more  and  no  less ;  if  he  wants 
more,  he  may  have  nothing  to  render  in  exchange  for 
the  excess  which  A  is  willing  to  accept ;  if  less,  A 
may  have  nothing  which  the  other  wants,  besides 
wheat  with  which  to  help  pay  for  the  coat.    Even  in 


190      ELEMENTS  OF  POLITICAL  ECONOMY. 

the  simpler  states  of  society,  the  inconvenience,  loss 
of  time,  and  deterioration  of  commodities  involved  in 
direct  barter,  are  very  great,  and  in  more  advanced 
states  of  civilization  would  be  intolerable,  if  it  were 
possible,  as  it  is  not,  for  society  to  become  advanced 
under  those  conditions.  Exchanges  are  so  limited 
in  time,  place,  and  variety,  association  is  so  ham- 
pered, and  the  development  of  all  peculiar  talents  so 
impeded,  under  a  system  of  simple  barter,  that  one 
of  the  initial  steps  in  the  progress  of  all  societies 
has  been  to  hit  upon  some  expedient  to  lessen 
these  intrinsic  difficulties ;  and  so  to  facilitate  ex- 
changes. This  expedient  has  been  the  invention 
of  money,  that  is  to  say,  the  selection  of  some  prod- 
uct, which,  by  general  consent,  instead  of  the  par- 
ticular purchasing-power  of  common  commodities, 
should  have  a  universal  purchasing-power ;  so  that, 
whenever  anybody  has  anything  to  exchange,  he 
may  first  exchange  it  for  this  product,  whatever  it 
be,  and  then  with  this  product  purchase  at  any  time 
and  place,  whatever  he  may  want.  Money  makes 
no  alteration  in  any  law  of  value,  but  merely  sub- 
stitutes for  convenience'  sake  in  every  transaction 
in  which  it  plays  a  part,  a  universal  for  a  specific 
purchasing-power;  a  book,  for  example,  has  a  specific 
purchasing-power ;  there  is  somebody  who  wants  it, 
and  is  willing  to  give  a  sum  of  money  for  it ;  and 
the  owner  by  the  sale  of  it  parts  with  a  product 
which  has  only  the  power  to  purchase  something 
from  a  few  persons,  and  receives  a  product  which 
has  the  power  to  purchase  something  from  all  per- 
sons ;  it  is  not  true  to  say  that  the  book  is  worth 
more  than  the  money,  or  the  money  is  worth  more 


OlSr  MONEY.  191 

than  the  book,  because  they  are  just  worth  each 
other,  as  is  demonstrated  by  the  sale  ;  but  it  is  true 
to  say  that  the  seller  of  the  book  has  substituted  in 
the  place  of  a  limited  purchasing-power,  of  which 
he  was  proprietor,  a  general  purchasing-power,  of 
which  he  has  now  become  proprietor ;  and  that  the 
command  of  the  money,  which  has  no  more  value 
than  the  book  had,  does  carry  along  with  it  a  supe- 
rior command  over  purchasable  articles  generally. 
In  one  word,  value  in  the  form  of  money  is  in  a 
more  available  shape  for  general  purchasing,  than 
value  in  any  other  form.  This  is  the  exact  expression 
for  what  truth  there  is  in  the  common  vague  remark, 
that  money  is  different  from  all  other  commodities ; 
in  point  of  value,  it  is  different  from  other  commodi- 
ties in  just  one  respect,  namely,  while  they  have  the 
power  of  buying  some  sorts  of  things  from  some  per- 
sons, it  has  the  power,  derived  from  the  usages  of 
society,  to  buy  all  sorts  of  things  from  all  persons. 

It  might  seem,  at  first  sight,  as  if  the  introduction 
of  money,  instead  of  simplifying  the  operations  of 
exchange,  would  only  complicate  them,  since  it 
necessitates  two  exchanges,  where  otherwise  there 
would  be  but  one ;  but  reflection,  as  well  as  experi- 
ence, is  able  to  convince  us  that  there  is  no  machine 
which  economizes  labor  like  money  ;  no  instrument 
which  plays  so  important  a  part  in  production ;  no 
invention,  unless  it  be  the  invention  of  letters,  which 
has  contributed  more  to  the  civilization  of  mankind. 
While  men  still  exchanged  in  kind,  and  knew  no 
other  mode,  the  purchasing-power  of  a  service  was 
very  much  confined  in  place,  and  would  not  be 
parted  with    except  in  view  of  the   return   service 


192  ELEMENTS  OF  POLITICAL  ECONOMY. 

actually  there  present,  the  ultimate  parties  to  an 
exchange  must  for  the  most  part  come  together 
locally,  in  order  to  effect  an  exchange ;  under  a 
money  system,  this  is  no  longer  necessary,  for  it  is 
sufficient  to  constitute  a  market  for  any  commodity 
that  it  is  wanted  anywhere  on  the  globe,  the  middle 
man,  paying  the  seller  for  it  in  money,  transports  it 
thither,  and  receives  back  his  money  with  a  profit 
from  the  ultimate  consumer.  Thus  money  brings 
conveniently  buyers  and  sellers  together  commer- 
cially, no  matter  how  far  separated  locally.  So, 
also,  money  generalizes  any  purchasing-power  in 
point  of  time.  The  fruit-dealer,  for  example,  must 
dispose  of  his  product  quickly,  or  it  perishes  on  his 
hands,  but  by  transmuting  his  perishable  product 
into  money,  he  may  keep  its  power  of  purchase 
locked  in  this  form  as  long  as  he  lists ;  the  money, 
indeed,  is  only  good  to  purchase  with,  but  it  puts  an 
interval  at  the  pleasure  of  the  holder  between  sell- 
ing and  buying,  and  with  this  generalized  power  in 
his  pocket  he  may  buy  when  he  will,  and  what  he 
will,  and  where  he  will.  Money,  too,  makes  any 
purchasing-power  portable,  divisible,  and  loanable. 
A  man  may  carry  the  value  of  his  farm  in  his  purse, 
and  may  divide  it  up  for  a  thousand  different  pur- 
chases, and  especially  is  able  to  loan  it  in  this  form, 
to  receive  it  back  again  with  interest  at  a  future  day. 
Value  in  any  other  form  than  money  is  not  gener- 
ally suitable  for  loaning,  because  there  are  com- 
paratively few  who  are  willing  to  borrow  a  merely 
specific  purchasing-power,  and  guarantee  its  return 
in  that  form  with  the  due  increase ;  but  money,  as  a 
generalized  agent,  will  command  all  services  at  all 


ON  MONEY.  193 

times,  will  serve  at  any  man's  bidding,  and  work  in 
all  sorts  of  harness,  and  therefore  it  is  rarely  difficult 
for  men  to  loan  any  sums  of  money  they  have  not 
immediate  use  for,  and  to  make  every  moment  of 
their  own  abstinence  pay  tribute  in  interest,  and  the 
advantages  to  both  lenders  and  borrowers  secured 
through  this  form  of  value — money — are  incalcu- 
lable. Thus  we  see  the  reason  why  governments, 
corporations,  and  individuals,  when  they  borrow, 
borrow  money.  This  general  view  of  the  uses  and 
advantages  of  money  will  show  it  to  be  one  of  the 
most  potent  of  the  social  agents,  and  will  serve  also 
to  introduce  our  first  specific  proposition. 

1.  Money  is  a  medium  of  exchange. 

The  word  medium  in  this  proposition,  is  to  be 
taken  in  its  etymological  and  strict  sense,  as  some- 
thing that  comes  between  two  extremes,  and  serves 
also  to  relate  them  to  each  other.  Money  is  only  a 
medium  of  exchange,  and  not  a  real  subject  of  ex- 
change ;  it  is  a  very  great  help  in  exchanging  all 
other  things,  but  is  never  exchanged  for  itself  in  an 
ultimate  transaction.  Small  boys,  indeed,  swap 
cents,  but  men,  the  miser  excepted,  who  is  under  a 
deplorable  fallacy  of  the  senses,  use  and  estimate 
money  only  as  the  medium  which  facilitates  the  real 
exchanges  of  society.  What  is  really  exchanged  is 
the  wheat,  the  cloth,  the  lumber,  the  furniture,  the 
service  of  every  kind,  and  money  is  but  the  instru- 
ment making  these  exchanges  easy,  which  might 
indeed  go  on  without  it,  though  with  difficulty  and 
loss.  It  is  like  a  railroad  ticket.  What  you  want  is 
to  be  carried  to  a  certain  place  in  the  cars.  That 
is  what  you  really  buy  and  pay  for,  but  for  conven- 

13 


194  ELEMENTS  OF  POLITICAL  ECONOJUY. 

ience,  merely,  a  ticket  is  given  you,  as  evidence  of 
the  purchase.  You  care  nothing  about  the  ticket, 
except  that  it  insures  to  you  a  seat.  It  is  a  mere 
bit  of  paper,  but  it  stands  you  in  good  stead  when 
the  conductor  comes  along.  It  comes  in  as  a  me- 
dium between  the  railroad  company  and  you,  and 
while  it  facilitates  the  real  exchange,  at  the  same 
time  it  somewhat  disguises  it.  It  is  exactly  so  with 
money,  only  money,  instead  of  being  a  specific  ticket 
for  one  purpose,  is  a  general  ticket  for  all  purposes 
of  purchase.  We  do  not  care  anything  about 
money,  any  more  than  we  do  about  the  ticket.  We 
part  with  it  freely  and  constantly  for  those  things 
which  we  do  care  about.  What  we  really  care  for 
is  what  the  money  will  buy,  is  the  command  over 
all  services  and  commodities  which  the  possession 
of  money  insures.  If  we  could  give  our  own  ser- 
vice or  commodity,  whatever  it  is,  and  receive 
directly  in  return  the  service  or  commodity  which 
we  want,  whatever  it  is,  there  would  be  no  need  of 
money.  This  is  generally  inconvenient,  and  some- 
times impossible.  Therefore  we  introduce  a  middle 
term  between  the  two  extreme  terms.  Money  is 
only  a  mean  which  helps  exchange  the  two  ex- 
tremes. And  the  value  of  the  money  of  any  coun- 
try is  a  very  small  fraction,  probably  not  over  one 
fortieth,  of  the  value  of  that  which  it  helps  to  ex- 
change. By  the  last  census  the  estimated  value  of 
real  and  personal  property  in  the  United  States  was, 
in  round  numbers,  $16,000,000,000.  The  whole 
currency  of  the  country  in  1860  was  certainly  less 
than  $400,000,000;  so  that  the  money  of  the  country 
stood  to  its  aggregate  material  wealth   in  the  ratio 


ON  MONEY.  195 

at  least  of  one  to  forty.  Besides  all  that  portion 
of  this  real  and  personal  property  which  changed 
hands  in  that  year,  the  currency  helped  to  exchange 
all  the  simple  services,  as  those  of  professional  men, 
teachers,  servants,  and  so  on,  which  were  rendered 
in  that  year,  and  which  are  not  included  in  the  cen- 
sus estimate,  except  partially  and  indirectly,  so  far 
as  the  returns  to  such  services  had  been  transformed 
into  real  and  personal  property.  If  we  suppose  that 
transactions  to  the  value  of  $16,000,000,000,  were 
concluded  in  this  country  in  the  year  1860,  and 
that  $400,000,000  constituted  the  money  in  circula- 
tion, then  it  follows  that  each  dollar  of  money  cir- 
culated on  the  average  forty  dollars  of  value,  or, 
w^hat  is  the  same  thing,  each  dollar  of  the  circula- 
tion made  on  the  average  forty  payments,  in  the 
course  of  the  year.  It  is,  of  course,  impossible  to 
determine  with  exactness  the  aggregate  value  of 
the  money  exchanges  of  any  country  for  any  given 
period,  but  if  this  could  be  determined,  and  should 
then  be  regarded  as  a  dividend,  for  which  the  aggre- 
gate money  of  the  country  were  a  divisor,  the  quo- 
tient would  express  what  has  been  called  the  rapidity 
of  circulation,  that  is,  the  number  of  times  w^hich 
each  dollar  changes  hands  on  the  average  in  order  to 
effect  the  given  amount  of  exchanges;  and  it  would 
also  express  how  many  more  times  the  value  of  that 
is  which  the  money  of  a  country  helps  to  exchange, 
than  its  own  value  is.  That  it  should  express  this 
last,  however,  accurately,  we  must  suppose  that  the 
same  product  is  exchanged  by  the  help  of  money 
only  once  between  the  producer  and  the  consumer. 
Probably  the  ratio  of  one  to  forty  is  below  rather 


196  ELEMENTS  OF  POLITICAL  ECONOMY. 

than  above  the  true  ratio  of  the  aggregate  money  of 
the  commercial  nations  to  the  money  value  of  those 
products,  reckoned  only  once,  which  this  money 
helps  to  exchange.  Therefore  we  see  that  the  hub 
and  spokes,  and  rim  of  the  wheel  of  exchange  con- 
sist of  services  and  commodities  of  every  descrip- 
tion; while,  to  borrow  the  famous  comparison  of 
Hume,  money  is  but  the  grease  which  makes  the 
wheel  turn  easier.  It  is  a  vast  mistake  to  suppose 
that  the  grease  is  the  wheel  itself. 

Hume's  comparison,  though  exact  as  far  as  it  goes, 
and  for  the  purposes  for  which  he  used  it,  is  never- 
theless capable  of  misleading  the  mind.  It  is  true 
that  money  is  the  grease  which  facilitates  the  revo- 
lution of  the  wheel  of  exchange,  but  it  is  also  true 
that  the  dimensions  of  the  wheel  itself  are  vastly 
greater  than  they  would  have  been  had  it  not  been 
for  money.  Money  indeed  helped  exchange  the  prod- 
ucts that  already  existed  at  its  first  invention,  but 
by  far  the  largest  part  of  products  since  have  come 
into  existence  largely  through  the  agency  of  money. 
We  get  quite  too  low  a  view  of  the  function  of 
this  potent  agent,  if  we  think  of  it  merely  as  an 
aid  in  circulating  products  that  would  have  existed 
whether  or  no;  some  products  would  have  existed 
whether  or  no,  and  money  certainly  is  of  great  use 
and  convenience  in  helping  bring  these  to  the  ulti- 
mate consumers  ;  but  this  is  a  partial  and  wholly 
inadequate  view  of  the  true  function  of  money  as  a 
medium  of  exchange.  The  fact  that  such  a  medium 
is  in  universal  circulation,  and  that  the  holders  of 
it  are  ready  to  exchange  it  against  any  sort  of  ser- 
vices adapted   to   gratify  their   desires,  exercises    a 


I 


ON  MONEY.  197 

kind  of  creative  power,  and  brings  a  thousand  prod- 
ucts to  the  market  which  would  otherwise  never 
have  come  into  existence.  Since  money  will  buy 
anything,  men  are  on  the  alert  to  bring  forward 
something  which  will  buy  money ;  and  since  money 
is  divisible  into  small  pieces,  an  incredible  number  and 
variety  of  small  services  are  brought  forward  to  be 
exchanged  against  these  pieces,  which  services  we 
have  no  reason  to  suppose  would  ever  be  brought 
forward  at  all,  were  it  not  for  the  strong  attraction 
of  the  money.  In  this  point  of  view,  the  true 
nature  of  money  is  best  perceived,  when  it  is  con- 
sidered, as  it  really  is,  as  a  very  important  portion 
of  the  capital  of  the  world.  Capital,  as  we  have 
already  learned,  is  any. product  reserved  to  be  em- 
ployed in  farther  production.  The  circulating  me- 
dium of  any  country  is  the  most  active,  the  most 
profitable,  and  the  most  essential  of  all  those  instru- 
ments reserved  in  aid  of  further  production.  The 
axe,  the  plough,  the  spindle,  the  loom,  the  wheel,  the 
engine,  are  all  instruments,  are  all  capital,  and  they 
each  aid  respectively  some  part  or  parts  of  the  pro- 
cesses of  production  ;  but  money  is  a  form  of  capital 
which  stimulates  and  facilitates  all  the  processes  of 
production  without  exception.  Just  as  we  have  seen 
that  money  is  a  form  of  value  generalized,  so  is  it  also 
a  generalized  form  of  capital,  that  is  to  say,  it  is  an 
instrument  capable  of  aiding  all  production  in  every 
department,  while  every  other  instrument  is  capable 
of  aiding  but  few  processes  in  one  department. 
Without  money,  there  could  be  no  thorough  division 
of  labor,  because  there  would  be  no  adequate  means 
of  estimating  or  rewarding  each  one's  share  in  a  com- 


198  ELEMENTS  OF  POLITICAL  ECONOMY. 

plicated  process.  By  means  of  money,  all  services, 
small  or  great,  contributing  toward  a  common  prod- 
uct, are  neatly  measured  and  paid  for  by  some 
one,  who  thereby  becomes  proprietor  of  the  whole 
product;  or,  if  the  contributors  chose,  they  may  wait 
till  the  product  itself  is  sold,  and  then  the  money 
received  is  divisible  without  loss  to  each  contributor, 
according  to  the  service  rendered.  Thus  the  influ- 
ence of  money,  as  capital,  pervades  the  whole  field 
of  exchange,  from  centre  to  circumference,  facilitat- 
ing every  transfer,  and  stimulating  to  new  transfers. 

Money,  then,  is  a  medium  of  exchange  ;  and  the 
question  arises  in  this  connection,  how  much  of  it  is 
wanted  ?  Clearly,  only  so  much  as  will  serve  the 
purposes  which  such  a  medium  is  fitted  to  subserve; 
there  should  be  enough  fairly  to  mediate  between 
the  services  actually  ready  to  be  exchanged  then 
and  there,  and  also  enough  fairly  to  call  out  other 
services,  proper  and  profitable  in  the  then  circum- 
stances of  society,  and  whose  only  obstacle  to  a 
profitable  exchange  then  and  there,  is  the  lack  of  a 
facilitating  medium.  All  increase  of  money  beyond 
this  point,  which  the  very  nature  of  money  itself 
marks  out  as  the  boundary,  leads  to  an  inevitable 
depreciation  of  the  whole  mass,  to  a  consequent 
disturbance  of  all  existing  money  contracts,  to  a 
universal  rise  of  prices  which  are  illusory  and  gain- 
less,  to  unsteadiness  and  derangement  in  all  legiti- 
mate business,  and  to  a  spirit  of  restless  enterprise 
and  speculation,  which  seeks  to  draw  off  the  excess 
of  money  in  untried  and  reckless  experiments.  These 
consequences  from  this  cause  have  been  again  and 
again  witnessed  in  every  commercial  country,  and  in 


ON  MONEY.  199 

the  United  States  on  a  gigantic  scale  during  the 
past  three  years.  I  cannot  help  thinking  that  Mr. 
Carey,  who  has  thrown  so  much  light  on  certain 
portions  of  the  field  of  Political  Economy,  is  de- 
cidedly in  the  wrong  in  the  view  he  maintains  that 
there  cannot  be  too  much  money  in  any  country. 
No  WTiter  has  brought  out  more  clearly  than  he  has, 
the  intimate  relations  of  money  with  all  industrial 
development ;  but  he  seems  at  times  to  forget  that 
money,  essential  and  potent  as  it  is,  is  essential 
and  potent  only  as  a  medium.  The  real  subjects  of 
exchange  are  mutual  efforts,  mutual  services,  and 
money  is  the  instrument  merely  that  comes  in  be- 
tween the  real  services  exchanged  to  facilitate  the 
exchange ;  and  therefore  it  seems  to  me  to  be  per- 
fectly conclusive  on  the  point  to  remark,  that  the 
quantity  of  money  needed  in  any  country,  or  in  the 
whole  world,  is  limited  by  the  number  of  the  ser- 
vices ready  to  be  exchanged,  to  facilitate  the  ex- 
change of  which  is  the  only  purpose  and  end  of 
money.  The  physical  and  mental  powers  of  men, 
which  alone  give  birth  to  services,  when  considered, 
as  they  must  be  in  this  connection,  as  belonging  to 
a  given  number  of  men  at  a  given  time  and  place, 
are  strictly  limited;  and  although  the  presence  of 
money  then  and  there  is  both  a  stimulus  and  an  aid 
to  their  bringing  forward  services  of  all  sorts  to  the 
market,  there  are  obvious  limitations  both  in  their 
powers  and  in  their  circumstances ;  and  the  quan- 
tity of  money  needed  among  them  is  just  that 
quantity  which  will  fairly  act  as  a  medium  in  ex- 
changing the  services  which  they  are  able  and 
willing  to    render  to    each    other.     All    increase   in 


200  ELEMENTS  OF  POLITICAL  ECONOMY. 

the  quantity  of  money  beyond  that  point  would 
have,  and  could  have,  the  only  effect  of  increasing 
the  nominal  prices  of  services,  without  making  the 
services  themselves  any  greater  in  number  or  better 
in  quality.  It  is  with  money  exactly  as  it  is  with 
any  other  form  of  capital,  allowance  being  made  for 
the  fact  that  money  is  a  kind  of  generalized  capital. 
How  many  ships  does  a  commercial  nation  need  to 
employ  ?  As  many  as  will  fairly  take  off  its  exports 
and  bring  in  its  imports.  Ships  are  wanted  for  one 
definite  purpose  ;  and  when  enough  are  secured  to 
answer  that  purpose,  all  additions  to  the  number  will 
lessen  the  value,  that  is,  the  purchasing-power  of 
ships  generally.  So  of  all  instruments  whatever. 
Enough  is  as  good  as  a  feast.  Enough  is  better 
than  more.  In  regard  to  every  form  of  capital,  the 
point  of  sufficiency  is  determined  by  the  quantity  of 
work  to  be  done.  Now,  money  is  a  form  of  capital, 
an  instrument,  having  this  peculiarity  only,  that  it  is 
capable  of  aiding  to  a  certain  extent  all  branches  of 
production  ;  and  the  point  of  sufficiency  in  the  quan- 
tity of  money  for  a  country,  or  for  the  world,  is  de- 
termined by  the  amount  of  products  of  all  kinds, 
otherwise  ready  to  be  exchanged,  and  only  waiting 
the  facilitating  agency  of  an  exchange  medium. 
The  quantity  of  money  being  given,  an  increased 
aggregate  of  exchanges  can  be  facilitated  by  it,  by 
means  of  a  greater  rapidity  of  circulation  of  that 
given  quantity.  $400,000,000,  changing  hands  forty 
times,  will  effect  exchanges  to  an  aggregate  of 
$16,000,000,000  in  a  year;  the  same  sum,  by  a 
circulation  doubly  rapid,  will  effect  twice  that  ag- 
gregate of  exchanges ;  ^o  that,  it  follows,  that  an 


ON  MONEY.  201 

increased  amount  of  business  to  be  done,  does  not 
necessarily  require  an  increased  volume  of  money, 
but  sometimes  only  a  brisker  use  of  that  already  in 
circulation.  As  in  mechanics,  so  in  money,  the 
whole  power  is  the  product  of  the  two  factors, 
mass  and  velocity.  Money  is  like  any  other  tool, 
the  more  constant  its  use  the  more  profitable  its 
agency.  If  $16,000,000,000  of  value  are  to  be  ex- 
changed, it  is  very  much  cheaper  that  $400,000,000 
of  money  should  do  the  work,  changing  hands  forty 
times,  than  that  $800,000,000  should  be  employed, 
changing  hands  only  twenty  times.  The  quick 
movement  of  a  small  mass  is  better  than  the  tor- 
pid movement  of  a  big  mass,  both  in  what  it  saves 
of  expense,  and  in  what  it  presupposes  of  the  gen- 
eral conditions  of  exchange.  It  only  remains  under 
this  proposition  to  add,  what  will  be  more  clearly 
perceived  when  we  come  to  treat  of  foreign  trade, 
that  no  enterprising  commercial  nation,  so  long  as 
the  natural  right  of  exchange  is  left  unimpeded,  and 
so  long  as  the  money  of  the  nations  consists  of  gold 
and  silver,  or  paper,  the  genuine  representative  of 
these,  can  ever  lack,  for  any  great  length  of  time,  a 
sufficient  quantity  of  money  to  serve  as  its  medium 
of  exchange. 

2.   Money  is  a  measure  of  value, 

I  hope  it  was  made  very  plain,  under  the  preced- 
ing proposition,  what  is  meant  when  it  is  said  that 
money  is  a  medium  of  exchange.  Closely  com- 
mingled with  its  function  as  a  medium,  money  has 
another  very  delicate  function,  as  a  measure  of  value. 
How  important  this  second  function  is  may  be  seen 
by  supposing  for  a  moment  that  there  were  no  in- 


202  ELEMENTS  OF  POLITICAL  ECONOMY. 

strument  in  existence  capable  of  performing  it. 
Without  a  common  measure  of  values  of  different 
sorts,  it  would  be  inconvenient,  not  to  say  impos- 
sible, to  carry  on  traffic  at  all.  For  instance  :  A 
baker  has  only  loaves  of  bread,  and  wishes  to  buy  a 
hat,  a  horse,  a  house.  How  many  loaves  shall  he 
give  for  each  ?  Without  some  common  denomina- 
tion in  which  these  differing  values  can  be  expressed, 
and  by  means  of  which  they  can  be  brought  into 
numerical  relations  with  each  other,  it  would  be  an 
awkward  piece  of  business  to  effect  even  the  three 
exchanges ;  and  every  time  he  wished  to  purchase 
another  article,  there  must  be  an  independent  cal- 
culation from  different  data,  to  decide  the  terms  of 
the  exchange.  Introduce  now  some  common  denomi- 
nations in  which  each  of  these  values  can  express 
itself,  and  the  difficulty  disappears  in  an  instant. 
"  My  loaves  are  worth  ten  cents  each,"  says  the  baker. 
"  My  hat  is  worth  ten  dollars,"  says  the  hatter.  The 
terms  of  exchange,  then,  are  100  for  1,  and  no  par- 
leying. So  of  the  rest ;  so  of  everything  that  is  ever 
bought  or  sold.  Dollars  and  cents  are  the  denomi- 
nations in  which  values  are  reckoned,  and  by  which 
they  can  be  compared  with  each  other  numerically, 
just  as  feet  and  inches  are  the  denominations  by 
which  different  lengths  are  compared,  and  pints  and 
quarts  the  denominations  by  which  capacity  is  meas- 
ured ;  and  the  builder  and  the  surveyor  would  not 
be  more  at  a  loss  in  their  work  without  the  units  of 
length,  or  the  vintner  without  the  units  of  capacity, 
than  everybody  would  be  at  a  loss  without  the  units 
of  value.  Dollars  and  cents  are,  as  it  were,  the 
language  in  which  values  express  themselves ;   and, 


ON  MONEY.  203 

without  some  such  language,  the  busiest  marts  of 
exchange  would  soon  become  not  only  a  silent  but  a 
deserted  scene. 

The  difference  between  money  as  a  medium  and 
money  as  a  measure  is  one  that  should  be  clearly 
delineated  and  perfectly  apprehended,  because  there 
is  no  such  thing  as  adequately  understanding  the 
subject  of  money  unless  the  two  functions  be  kept 
distinct  in  the  mind,  as  well  in  their  single  as  in  their 
commingled  action.  There  is  the  same  difference 
between  money  as  a  medium  and  money  as  a  meas- 
ure that  there  is  between  a  bushel  of  wheat  and  that 
round  vessel  by  which  we  determine  that  there  is  a 
bushel:  dollars  and  cents  perform  their  duties  as  a 
medium  by  virtue  of  their  being  commodities ;  they 
perform  their  duties  as  a  measure  by  virtue  of  their 
being  denominations.  For  example  :  A  Berkshire 
woollen-manufacturer  goes  to  market  to  buy  wool, 
and  calls  on  five  dealers,  each  of  whom  demands  a 
certain  price,  and  in  conversation  with  each  of  whom, 
consequently,  our  manufacturer  uses  money  as  a 
measure ;  that  is  to  say,  uses  the  denominations  as 
a  means  of  comparison  ;  but  with  that  one  only 
with  whom  a  bargain  is  consummated  does  he  use 
money  as  a  medium  ;  that  is  to  say,  pay  it  out  in 
exchange.  The  distinction  between  denominations 
and  those  things  themselves  which  are  reckoned  by 
denominations  seems  a  very  obvious  distinction, 
and  one  would  suppose  the  two  not  likely  to  be 
confounded  ;  but,  the  truth  is,  the  two  are  perpetually 
confounded,  even  in  some  of  the  most  recent  and 
approved  works  on  money.  Indeed,  the  gi'and  diffi- 
culty and  source  of  error  in  discussions  on  money 


204  ELEMENTS  OF  POLITICAL  ECONOMY. 

heretofore  has  been  that  this  distinction  has  rarely, 
if  ever,  been  consistently  attended  to ;  and  I  flatter 
myself  that  I  am  doing  the  science  a  service  at  this 
point  by  calling  attention  to  this  confusion,  by  ex- 
plaining bow  it  arises,  and  by  clearing  up,  so  far 
forth,  a  vexed  portion  of  the  subject. 

How  does  it  happen  that  money  is  constantly  con- 
founded with  the  denominations  in  which  it  is  reck- 
oned, while  feet  and  inches  are  never  confounded  with 
lumber  or  lath,  pints  and  quarts  with  milk  or  beer, 
acres  and  rods  with  meadows  or  pastures  ?  The  rea- 
son is  this :  all  other  tables  of  denominations  have  a 
basis  independent  of  the  things  which  they  measure, 
and  are  not  variable  by  the  quality  or  quantity  of 
those  measurable  things.  A  French  metre,  for  ex- 
ample, is  an  invariable  unit  of  length  the  world  over; 
so  is  one  of  Troughton's  inches  ;  but  this  is  not  true 
of  the  denominations  of  money  at  all.  Pounds,  dol- 
lars, guilders,  francs,  and  their  subdivisions,  are  de- 
nominations of  value ^  which  is  a  variable  relation, 
and  as  denominations  they  follow  the  fortunes  of  the 
coins  whose  names  they  are.  When  the  cunrent  dol- 
lar, for  instance,  sinks  to  one  half,  or  rises  to  twice, 
its  previous  purchasing-power,  we  call  it  a  dollar  all 
the  while,  the  denomination  perpetually  shifting  with 
every  variation  of  the  thing,  and  the  illusions  and 
mistakes  are  numberless  which  result  from  calling  a 
thing  which  is  no  longer  the  same  as  before  by  the 
same  name  as  before.  Mr.  Charles  Moran,  in  his 
late  interesting  book  on  "  Money,"  quotes  approv- 
ingly from  the  "  Edinburgh  Review "  the  following 
sentence  :  —  "  Were  an  ounce  of  gold  to  fall  to  one 
tenth  of  its  present  cost  of  production,  or  to  cost  ten 


ON  MONEY.  205 

times  as  much  labor  as  it  does  now,  still,  while  the 
regulations  of  the  mint  are  unaltered,  it  will  be  worth 
£3  17s.  10|6?."  1  Here  is  an  instance  of  perfect  con- 
fusion between  the  name  pounds  and  the  thing 
pounds.  No  doubt,  under  either  of  the  conditions 
supposed,  the  result  would  be  as  stated  so  far  as 
pounds,  shillings,  and  pence  are  denominations ;  but 
so  far  as  pounds,  shillings,  and  pence  are  purchasing- 
powers,  there  would  be  a  difference  in  their  value 
under  the  two  conditions,  other  things  being  equal, 
of  1  to  100.  The  denominations  of  value,  then,  are 
not  an  independent  standard  to  which  values  them- 
selves can  be  referred,  as  lengths  are  referred  to  the 
metre,  but  vary  with  the  varying  purchasing-power 
of  the  coins,  so  that  money  as  a  measure  is  only 
uniform  when  money  as  a  medium  is  uniform.  So 
indispensable,  however,  in  all  exchanges  is  some 
common  measure  of  value,  that  the  denominations 
of  money,  notwithstanding  their  variable  character, 
are  universally  employed  in  estimating  and  exchang- 
ing commodities,  even  when  no  money  as  a  medium 
is  used. 

Without  reflection,  it  might  be  supposed,  that, 
since  the  measure  rises  and  falls  with  the  medium, 
no  practical  error  is  liable  to  follow  the  confounding 
of  the  two  functions  ;  but  it  is  the  very  sympathetic 
connection  between  the  two  that  gives  rise  to  the 
possibility  of  error.  If  the  units  of  money  were, 
like  the  linear  units,  inflexible,  so  that  all  variations 
of  the  medium  could  be  instantly  detected  by  a  ref- 
erence to  the  standard  of  measure,  there  would  be 
no  difficulty  at  all :  I  could  loan  a  thousand  dollars 

1  Money,  by  Charles  Moran.    New  York.    1863.    Page  66. 


206  ELEMENTS  OF  POLITICAL  ECONOMY. 

for  one  year,  or  ten  years,  and,  however  much  the 
medium  might  vary  in  the  interval,  be  sure  that  I 
should  receive  back  just  as  much  purchasing-power 
as  I  loaned,  with  the  interest  on  the  same ;  it  might 
be  more  or  fewer  dollars  than  the  number  I  loaned, 
which  is  a  matter  of  indifference.  As  it  is,  no  lender 
can  have  any  such  assurance.  The  borrower  is 
bound  to  pay  back  with  interest  the  same  number 
of  dollars  as  he  received,  although  the  dollar-medium, 
and  hence  the  dollar-measure,  may  meanwhile  have 
fallen  or  risen  greatly.  In  the  United  States,  for  the 
past  three  years,  the  current  money  has  exchanged 
against  gold  from  130  to  285  of  the  one  for  100  of 
the  other ;  and  it  is  very  obvious  that  all  debts  of  old 
standing,  paid  in  this  period,  have  been  only  legally, 
and  not  actually,  liquidated  ;  and  that  debts  con- 
tracted when  the  depreciation  was  more  and  paid 
when  it  was  less  were  more  than  actually  liquidated. 
This,  of  course,  presupposes,  what  we  are  not  yet  in 
a  position  to  assume,  that  gold  remained  a  proper 
and  uniform  standard.  The  subtle  error  to  be 
avoided  alike  in  discussion  and  in  practice  is,  to 
suppose  that  money,  either  as  a  medium  or  as  a 
measure,  remains  unchanged,  simply  because  the 
name  remains  unchanged  by  which  we  designate 
its  denominations. 

It  may  be  asked,  why  cannot  this  source  of  error 
be  obviated?  I  reply,  that  the  error  may  be  obvi- 
ated, but  the  source  of  it  cannot  be  obviated  from 
the  nature  of  the  case.  It  was  shown  in  our  chap- 
ter on  Value  that  to  find  an  invariable  measure  of 
value  is  a  natural  impossibility.  Money,  as  it  is  the 
medium    of  exchange,   is  also   the   best   attainable 


ON  MONET.  207 

measure  of  value,  and  is  used  throughout  the  civil- 
ized world  to  compare  with  each  other  all  values 
except  its  own  ;  but  since  value  in  general,  and  the 
value  of  money  as  well,  is  a  thing  of  relation,  and 
varies  with  every  change  affecting  either  of  the 
things  exchanged,  as  much  by  changes  affecting  the 
things  it  exchanges  for  as  by  changes  affecting 
itself,  —  the  value  of  a  hat,  for  instance,  as  estimated 
in  gloves,  increasing  by  any  cheapened  process  in 
glove^making,  though  no  change  at  all  take  place  in 
the  cost  of  hat-making,  —  a  perfect  measure  of  value 
is  impossible.  Therefore  the  denominations  of 
money,  which  is  the  best  attainable  measure,  can 
never  have  a  meaning  absolutely  fixed,  but  slide  up 
and  down  the  scale  along  which  the  purchasing- 
power  of  money  as  a  medium  is  moving,  and  they 
are  consequently  useless  as  a  standard  to  detect  any 
changes  in  the  medium  itself,  while,  the  medium 
remaining  uniform,  they  instantly  detect  the  changes 
in  all  other  purchasing-powers.  This  will  always  be 
so.  The  same  difficulty  does  not  occur  in  having  a 
perfect  measure  of  length  or  of  capacity,  —  a  perfect 
inch  or  a  perfect  pint.  The  French  have  a  perfect 
system  of  measures  and  weights.  Their  mathemati- 
cians measured  an  arc  of  the  earth's  circumference, 
and  thus  determined  the  absolute  length  of  a  degree 
of  latitude.  Three  hundred  and  sixty  times  this 
length  makes  up  the  length  of  the  earth's  circumfer- 
ence,—  an  invariable  measure  recoverable  again  even 
if  it  should  be  once  lost.  This  measure  divided  by 
40,000,000  gave  the  French  nation  their  metre^  which 
is  a  perfect  unit  for  the  measure  of  length.  A  tenth 
part  of  the  metre  cubed  gave  them  their  litre ^  which 


208  ELEMENTS  OF  POLITICAL  ECONOMY. 

is  a  perfect  unit  for  the  measure  of  capacity.  The 
weight  of  a  hundredth  part  of  a  metre  cubed  of  dis- 
tilled water  at  the  temperature  of  maximum  density 
is  the  gramme^  an  invariable  unit  of  weight.  A 
linear  length  of  ten  metres  squared  gives  the  are,  the 
unit  of  surface.  A  perfect  measure  of  anything  de- 
mands for  its  starting-point  something  absolute  and 
invariable :  in  value  there  is  nothing  absolute ;  we 
begin  with  a  relation,  and  therefore  an  unchangeable 
measure  is  not  to  be  looked  for.  Still,  it  is  vastly 
important  for  the  interest  of  exchange  that  the 
accepted  measure  of  value  be  as  little  liable  to  fluc- 
tuations as  possible,  especially  in  all  cases  in  which 
lapse  of  time  is  involved  before  the  exchange  is  fully 
consummated.  For  precisely  the  same  reason  that 
the  bushel-measure  should  be  of  the  same  capacity 
in  sowing-time  and  in  harvest,  to  sell  by  and  buy  by, 
always  a  bushel,  no  more  and  no  less ;  and  the  yard- 
stick an  inflexible  measure  of  length,  the  same  for 
buyer  and  seller,  always  thirty-six  of  Troughton's 
inches,  no  more  and  no  less ;  so,  as  far  as  it  is  pos- 
sible in  the  nature  of  things,  ought  the  measure  and 
the  denominations  of  value  to  represent  year  in  and 
year  out  a  uniform  degree  of  purchasing-power.  All 
experience  has  shown  that  it  is  much  easier  to  find 
something  which  will  serve  as  a  medium  of  ex- 
change, and  thus  answer  the  first  purpose  of  money, 
than  to  find  anything  which  will  serve  permanently 
as  a  measure  of  value,  and  thus  answer  the  second 
and  more  delicate  purpose  of  money.  The  two  func- 
tions of  money  are  indeed  often  commingled,  for 
while  money  helps  to  exchange  values,  it  also  at  the 
same  time  in  a  manner  measures  them,  but  they  are 


ON  MONEY.  209 

also  quite  as  often  separated,  as  when  a  hundred 
dollars'  worth  of  goods  is  sold  to  be  paid  for  six 
months  hence ;  and  we  have  just  now  seen  the  radi- 
cal reasons  why  no  money  which  is  not  tolerably 
uniform  in  its  value  as  a  medium  can  even  tolera- 
bly perform  its  function  as  a  measure.  This  con- 
sideration brings  us  naturally  to  our  third  specific 
proposition. 

3.   Gold  and  silver  constitute  the  best  money. 

The  purposes  of  money  have  been  served  in  dif- 
ferent countries  and  in  different  ages  by  a  variety  of 
products,  according  to  the  taste  and  circumstances  of 
the  people.  Cattle  have  been  employed  as  money 
among  pastoral  people  in  almost  all  periods  of  the 
world,  and  are  still  employed  for  this  purpose  in 
Africa.  Slaves  among  the  Anglo-Saxons ;  wampum 
among  the  American  Indians;  salt  in  Abyssinia; 
codfish  in  Newfoundland  ;  tobacco  in  Virginia; 
wheat  in  Massachusetts;  nails  in  Scotland;  stamped 
leather  among  the  Carthaginians,  and  others ;  bark 
stamped  with  the  image  of  the  sovereign  in  China ; 
platina  in  Russia;  copper,  simple  or  compounded 
with  other  metals,  among  the  ancient  Romans,  and 
most  other  nations ;  iron  among  the  Spartans ;  gold 
and  silver  among  all  civilized  nations  sooner  or 
later  ;  have  been  or  still  are  used  as  money.  Of  all 
these  products,  the  two  last  have  shown  themselves 
to  be  best  adapted  for  the  purposes  of  money,  and 
have  come  consequently  into  universal  use  in  the 
commercial  world.  Experience  has  not  only  demon- 
strated the  superiority  of  these  metals  over  all  other 
forms  of  money,  as  is  shown  by  the  fact  of  their 

14 


210  ELEMENTS  OF  POLITICAL  ECONOMY. 

universal  adoption,  but  reason  also  is  able  to  tell  us 
why  gold  and  silver  are  the  best  money. 

(1.)  On  account  of  their  comparatively  steady 
value.  This  is  the  main  reason,  and  it  must  be 
firmly  grasped.  There  is  no  end  to  the  confusion 
which  has  crept  over  discussions  on  money  from  the 
circumstance  that  the  writers  have  not  first  of  all 
determined  for  themselves  with  fixed  clearness  what 
value  is.  This  must  be  done  at  the  outset,  if  there 
is  to  be  the  least  hope  of  sound  results ;  and  accord- 
ingly those  writers  have  succeeded  best  in  their  treat- 
ment of  money  who  have  made  its  discussion  a  part 
of  a  general  theory  of  value.  Mr.  Moran,  who  has 
treated  money  distinctively,  and  whose  book  is  in 
many  respects  an  excellent  one,  has  failed  at  this 
point,  and  for  this  reason.  He  does  not  exactly 
know  what  value  is,  and  consequently  he  does  not 
exactly  know  what  money  is.  He  speaks  of  "in- 
trinsic value,"  of  circulating-coin  "  as  losing  for  the 
time  its  intrinsic  value,"  of  "metallic  money  as  iden- 
tical with  paper  money  in  respect  of  being  destitute 
of  Intrinsic  value,"  and  so  on.^  Now,  value  is  value, 
and  there  is  only  one  kind  of  it,  and  the  epithet  in- 
trinsic is  only  used  to  help  out  a  lame  theory,  and  no 
such  epithet  is  pertinent  to  the  word  value,  and  no 
one  can  show  anything  different  in  the  value  of 
money,  either  in  respect  to  the  way  in  which  it 
arises,  or  in  the  laws  which  control  it,  from  the  value 
of  any  other  commodity,  excepting  only  the  differ- 
ence already  pointed  out,  that  money  by  the  usages 
pf  society  has  a  generalized  instead  of  a  specific 
purchasing-power.     It  is  all  false  to  speak  of  gold 

1  Page  2G,  note. 


ON  MONEY.  211 

and  silver  money  as  the  representative  of  value.  It 
represents  nothing  but  itself.  It  will  buy  other 
things  certainly,  and  so  will  a  bushel  of  wheat. 
Value  is  simple  purchasing-power,  and  money  has 
value  because  we  can  purchase  with  it,  exactly  as 
everything  else  has  value  for  that  very  reason. 
Society  is  so  constituted  that  a  want  is  felt  in  it  of 
some  medium  of  purchase ;  this  want  cannot  be 
supplied  without  an  effort;  whoever  makes  the  effort 
will  demand  a  corresponding  effort  made  for  him; 
when  it  comes  to  the  exchange  of  the  medium  for 
the  w^heat,  for  example,  there  stand  face  to  face,  as 
in  every  other  instance  of  exchange,  two  desires  and 
two  efforts ;  there  is  then,  as  always,  a  reciprocal 
estimation  of  the  two  services  about  to  be  ex- 
changed, and  the  estimation  agreed  on  is  the  value 
of  the  medium  expressed  in  wheat.  If  the  want  of 
any  medium  of  exchange  is  less  felt  in  any  commu- 
nity, or  if  the  effort  required  to  secure  it  be  for  any 
reason  less,  other  things  remaining  the  same,  the 
value  of  the  money  will  be  less,  that  is  to  say,  it 
will  purchase  less  of  other  things.  If  the  demand 
for  money  as  an  instrument  of  purchase  be  greater, 
or  the  obstacles  in  the  way  of  its  supply  be  increased, 
other  things  as  before,  the  value  of  the  money  will 
be  more.  It  is  the  old  circuit  over  again  of  wants, 
efforts,  estimations,  satisfactions.  The  value  of 
money  arises  under  the  same  conditions  as  every 
other  value,  and  is  variable  by  any  change  in  any 
one  of  the  four  elements  which  alone  can  vary  the 
value  of  anything.  Two  desires  and  two  efforts 
invariably  precede  every  exchange.  A  change  in 
any  one  of  these,  the  rest  unchanged,  can  vary  value, 


212  ELEMENTS  OF  POLITICAL  ECONOMY. 

and  nothing  else  can  vary  it;  and,  as  it  seems  to  me, 
no  person  has  ever  shown  or  can  show  that  the  value 
of  money  is  in  any  respect,  save  the  superficial  one 
already  noticed,  exceptional  and  peculiar.  And  it 
also  seems  to  me  that  nothing  more  is  needed  in 
order  to  remove  the  last  vestiges  of  the  dark  cloud 
which  has  so  long  overhung  this  subject,  than  to 
familiarize  one's  self  first  of  all  with  the  true  doctrine 
of  value  in  general,  and  then  hold  fast  the  truth,  ex- 
emplified on  every  side,  that  the  value  of  money  is 
just  like  any  other  value. 

Gold  and  silver,  then,  as  money,  have  value  in  the 
same  sense  and  for  the  same  reason  as  any  other 
productive  instrument,  and  we  must  now  attend  to 
the  reasons  why  their  value  is  so  steady. 

(a.)  On  account  of  the  comparatively  steady  de- 
mand for  these  metals.  Gold  and  silver  are  wanted 
for  two  general  purposes :  first,  to  be  used  as  money, 
and  second,  to  be  used  in  the  arts;  and  it  has  been 
estimated  that  about  two  fifths  of  the  aggregate 
quantity  in  the  world  is  in  the  form  of  money,  and 
the  other  three  fifths  in  the  form  of  plate,  utensils,  and 
ornaments.  Now,  so  far  as  the  element  of  desire 
controls  value,  the  purpose  for  which  any  article  is 
desired  is  a  matter  of  indifference.  The  aggregate 
desire  for  it  for  all  purposes,  accompanied  with  the 
offer  of  something  with  which  to  buy  it,  constitutes 
the  demand ;  and  the  more  universal  the  desire,  no 
matter  for  what  purpose,  the  steadier  the  demand, 
and,  so  far  forth,  the  steadier  the  value.  It  is  worth 
noticing,  in  opposition  to  Moran  and  others,  that  it 
is  not  the  demand  for  the  precious  metals  as  coin 
alone  that  determines   their   general  value,  nor  the 


ON  MONEY.  213 

demand  for  them  in  the  arts,  but  the  combined  de- 
mand for  all  purposes;  just  as  the  value  of  barley  is 
regulated,  partly  by  the  demand  for  it  for  food,  and 
partly  by  the  demand  for  it  for  malting    purposes. 
Hence  an  ounce  of  bullion  of  the  standard  fineness, 
destined  for  the  smelting-pot  of  the  artisan,  is  worth 
within  a  very  trifle  as  much  as  an  ounce  of  coined 
money.      By  the  law  of  the  Bank  of  England  an 
ounce  of  standard  gold  is  coined  into  £S  17s.  lOld., 
and  the  Bank  is  obliged  to  buy  all  bullion  and  for- 
eign coins  of  the  standard  fineness  offered  to  it  at 
£S  17s.  9d.  per  ounce  —  a  difierence  of  three  half- 
pennies.    Now,  gold  and  silver  are  so  indispensable 
in  the  form  of  money,  so  beautiful  in  the  form  of 
ornaments,  so  well  adapted  to  serve  the  purposes  of 
luxury  and  love  of  distinction,  so  really  useful  in  the 
arts,  that  the  demand  for  them  is  constant  and  w^ell- 
nigh  universal;  and  if,  in  the  progress  of  civilization, 
a  less  quantity  should  be  desired  for  personal  orna- 
mentation  and  purposes  of  luxury,  a   greater  will 
doubtless  be  required  for  the  other  uses ;  and  so,  as 
the  demand  in  the  past  has  been  steady,  and  perhaps 
steadily  increasing,  there  is  every  reason  to   expect 
the  same  for  the  time  to  come.     And  it  contributes 
to  the  steadiness  in  value  of  the  gold  and  silver  coin, 
that  there  is  at  hand  in  the  form  of  plate  a  reservoir 
from   w^hich   a  chance  chasm  in  the   coin  may  be 
replenished,  or  an  extra  demand  for  it  answered. 

(b.)  On  account  of  their  tolerably  uniform  cost  of 
production.  Not  desires  alone,  but  efi'orts  as  well, 
regulate  value.  Supply  is  the  correlative  of  demand; 
and  w  hen  to  a  steady  demand  there  answers  a  steady 
supply,  realized  under  conditions  of  pretty  uniform 


214  ELEMENTS  OF  POLITICAL  ECONOMY. 

difficulty,  there  will  be  of  course  a  pretty  steady 
value.  Nature  herself  has  indicated,  in  a  manner  not 
to  be  mistaken,  her  intention  that  these  metals 
should  be  the  money  of  the  nations.  She  has 
scattered  them  all  over  the  earth,  and  so  scattered 
them  that  the  cost  of  their  production  has  been  won- 
derfully uniform  ever  since  civilization  and  commerce 
begun.  There  have  been  but  two  marked  changes 
in  the  value  o^  gold  and  silver  throughout  the  com- 
mercial world  in  the  last  thousand  years;  the  first, 
in  the  sixteenth  century,  in  consequence  of  the  occu- 
pation of  Mexico  and  South  America  by  Europeans, 
when  the  value  of  the  precious  metals  diminished, 
according  to  Chevalier,  silver  in  the  ratio  of  1  to  3, 
and  gold  considerably  less  ;•  the  second,  in  conse- 
quence of  the  discovery  of  the  gold-fields  of  Califor- 
nia and  Australia  in  the  present  century,  which  has 
still  further  diminished  the  value  of  gold  perhaps 
twenty-five  per  cent.  With  these  exceptions,  and 
similar  ones  are  not  likely  to  recur,  these  metals 
have  always  maintained  and  are  likely  to  maintain 
a  remarkable  uniformity  of  value,  on  account  of  a 
remarkably  uniform  cost  of  production.  Even  these 
changes  became  only  gradually  perceptible,  and  did 
but  little  injury  to  individuals,  scarcely  disturbing 
the  justice  of  exchange  or  the  measure  of  value, 
except  in  cases  of  long  annuities  and  similar  obliga- 
tions. A  universal  rise  of  prices  soon  adjusted  ex- 
changes to  the  new  state  of  things. 

(c.)  On  account  of  their  quantity.  The  amount 
of  gold  and  silver  in  circulation  in  the  commercial 
world,  to  say  nothing  of  the  quantity  so  easily 
brought  into  circulation  from  the  reservoir  of  plate, 


ON  MONEY.  215 

is  SO  vast,  that  it  receives  the  annual  contributions 
from  the  mines  much  as  the  ocean  receives  the 
waters  of  the  rivers,  without  sensible  increase  of  its 
volume,  and  parts  with  the  annual  loss  by  detrition 
and  shipwreck,  as  the  sea  yields  its  waters  to  evapo- 
ration, without  sensible  diminution  of  volume.  The 
yearly  supply  and  the  yearly  waste  are  small  in  com- 
parison with  the  accumulations  of  ages ;  and  therefore 
the  relation  of  the  whole  mass  to  the  uses  of  the 
world,  and  the  purchasing-power  of  any  given  por- 
tion, remain  comparatively  steady.  It  is  probable 
that  production  at  the  mines  might  cease  altogether 
for  a  considerable  interval  without  very  sensibly  en- 
hancing throughout  the  commercial  world 'the  value 
of  gold ;  as  it  is  certain,  from  experience,  that  a 
production  very  largely  augmented  only  gradually, 
and  after  a  considerable  interval,  diminishes  its  value. 
The  mass  of  the  precious  metals  has  been  aptly  com- 
pared to  the  heavy  balance-wheel  in  mechanics, 
which  preserves  an  equable  and  working  condition 
of  the  machinery  under  any  sudden  increase  of  the 
power,  and  even  when  the  power  is  for  a  moment 
withdrawn.  At  this  point  a  caution  is  needful.  Be- 
cause it  is  affirmed  that  the  great  amount  of  the 
precious  metals  is  a  ground  of  their  firm  value,  it 
must  not  be  supposed'that  we  are  going  beyond  our 
general  doctrine,  and  introducing  another  element, 
namely,  quantity,  besides  the  four  elements  which, 
as  we  have  so  often  alleged,  can  alone  vary  the 
value  of  any  service;  quantity,  in  itself,  is  not  an 
element  capable  of  varying  the  value  of  anything, 
but  taken  in  connection  with  durability,  it  is  an 
element  of  what  might,  perhaps,  with  propriety  be 


216  ELEMENTS  OF  POLITICAL  ECONOMY. 

called  the  inertia  of  value,  and  tends  to  keep  the 
purchasing-power  of  gold  and  silver  where  it  is. 
Value  and  steadiness  of  value  are  two  distinct 
ideas.  The  present  value  of  an  ounce  of  gold  ex- 
pressed in  any  other  commodity  is  decided  by  four 
things  alone ;  but  other  elements  besides  these  may 
help  determine  that  that  ounce  of  gold  shall  have 
ten  years  from  now  a  purchasing-power  approxi- 
mately the  same  as  now.  It  will  depend,  of  course, 
in  the  last  analysis,  upon  the  relation  of  the  then  de- 
mand to  the  then  supply ;  yet  the  vast  quantity  of 
the  precious  metals  in  existence,  combined  with 
their  durability,  prevent  those  fluctuations  in  ^the 
supply  which  are  so  destructive  to  a  steady  value. 
It  is  not  as  with  the  fruits  and  the  grains,  whose 
value  varies  perpetually  with  the  seasons,  and  which 
are  so  perishable  that  they  must  be  sold  soon  or 
never :  gold  and  silver  are  almost  indestructible,  and 
except  by  wear  and  accident,  the  existing  mass  is 
not  liable  to  be  lessened,  and  in  so  far  as  the  annual 
production  from  the  mines  exceeds  the  yearly  waste 
there  is  a  natural  provision  made  for  the  natural  in- 
crease of  demand,  to  supply  the  wants  of  the  world 
for  currency  and  for  the  arts,  without  much  disturb- 
ing the  relation  of  the  demand  and  supply.  The 
quantity,  in  connection  with  the  durability  of  the 
precious  metals,  helps  preserve  to  them  a  tolerably 
steady  value  from  generation  to  generation. 

{d.)  On  account  of  their  fluency.  Gold  and  sil- 
ver are  in  demand  the  world  over.  Having  great 
value  in  comparatively  small  bulk,  they  are  easily 
transported  from  continent  to  continent ;  and  when- 
ever,  from   any   cause,    they   become   relatively   in 


ON  MONEY.  217 

excess  in  any  country,  and  thus  lose  there  a  por- 
tion of  their  previous  purchasing-power,  there  is  an 
immediate  motive  to  export  them  to  other  countries 
where  their  power  in  exchange  is  greater,  and  thus 
the  equilibrium  is  restored.  The  value  of  gold  and 
silver  throughout  the  commercial  world  is  thus  kept 
pretty  steady  by  the  facility  with  which  they  are 
carried  from  points  where  they  are  relatively  in  ex- 
cess to  points  where  they  are  relatively  in  deficiency. 
There  is  a  gain  in  carrying  them  to  those  countries 
where  their  power  of  purchase  is  the  greatest,  be- 
cause more  commodities  can  be  obtained  for  them 
than  at  home  ;  and  private  motives  here  coincide 
with  public  welfare,  since  what  the  traders  do  in 
transporting  gold  and  silver,  wnth  an  eye  to  their 
own  interest,  helps  maintain  at  home  and  abroad 
the  steady  value  of  these  commodities.  This  law  of 
the  distribution  of  the  precious  metals  by  commerce, 
and  the  equilibrium  of  value  resulting  therefrom,  is 
as  natural  and  beautiful  as  the  law  which  preserves 
the  level  of  the  ocean,  or  that  which  balances  the 
bodies  of  the  planetary  system.  This  has  come  at 
length  to  be  recognized  by  the  nations,  and  the  laws 
which  used  to  forbid  by  heavy  penalties  the  expor- 
tation of  gold  and  silver  are  all  swept  away,  and 
these  metals  are  now  free  to  go,  and  do  actually  go, 
where  they  can  obtain  the  most  in  exchange.  It  is 
absurd  to  suppose  that  their  owners  would  carry 
them  out  of  a  country,  unless  they  were  w^orth  more 
abroad  than  at  home,  and  therefore  the  prejudice 
which  exists  still  in  this  country  against  the  expor- 
tation of  gold  is  a  senseless  prejudice.  The  gold  is 
not  given  away ;  it  is  sold,  and  sold  for  more  than  it 


218  ELEMENTS  OF  POLITICAL  ECONOMY. 

will  buy  at  home ;  otherwise  it  would  not  be  carried 
abroad.  There  is  the  same  kind  of  gain  as  in  all 
other  exchanges,  and  this  great  incidental  advantage 
in  addition,  that,  by  means  of  free  commerce  in  the 
precious  metals,  their  general  value  is  kept  pretty 
uniform  throughout  the  world,  and  a  chance  redun- 
dancy in  one  currency  is  drawn  off  to  supply  a  cor- 
responding deficiency  in  another.  It  may.  be  laid 
down  as  an  axiom,  that  no  country  will  export,  for 
the  sake  of  getting  other  things,  those  things  which 
are  more  needful  for  its  own  welfare;  and  there 
need  not  be  the  slightest  fear  that  any  nation  which 
cultivates  its  own  advantages  under  freedom  will 
ever  lack  a  sufficient  quantum  of  the  precious  metals. 
Under  freedom,  and  so  long  as  human  nature  con- 
tinues what  it  is,  these  metals  will  go,  and  go  in  just 
the  right  proportions,  to  and  from  those  countries 
which  produce  and  offer  in  exchange  those  desirable 
services  which  other  countries  want.  The  greater 
the  enterprise  and  skill,  the  keener  the  development 
of  all  peculiar  and  presently  available  resources,  the 
more  honorable  and  free  the  commercial  system,  the 
surer  is  any  nation,  whether  it  be  a  gold-bearing 
country  or  not,  of  securing  the  gold  and  silver  which 
it  needs.  This  is  so,  because  there  will  be  a  good 
market  to  buy  in,  and  they  who  have  gold  will 
resort  thither  to  buy.  But  such  a  nation  will  also 
want  to  buy  other  things  besides  gold  and  silver,  and 
when  enough  of  the  latter  are  secured  for  the  cur- 
rency and  for  the  arts,  the  residue  will  be  exported, 
perhaps  to  the  very  countries  from  which  it  orig- 
inally came,  in  payment  for  some  products  which 
those  countries    have  an   advantage  in    producing. 


ON  MONEY.  219 

The  United  States  is  a  gold-producing  country,  and 
exported  in  the  years  1850-1860,  both  inclusive, 
$502,789,759,  coin  and  bullion ;  and  during  the 
same  period  we  imported  from  other  countries 
$81,270,571,  coin  and  bullion.^  Now,  there  was  a 
double  advantage  in  that  exportation.  In  the  first 
place,  more  and  better  cdmmodities  were  secured  to 
the  cou^itry  than  the  gold  could  have  bought  in  the 
country,  for  otherwise  it  w^ould  not  have  been  carried 
abroad  ;  and,  in  the  second  place,  this  large  sum  car- 
ried abroad  to  various  countries  in  exchange,  not 
only  prevented  the  disturbing  effect  on  our  own  cur- 
rency of  more  than  doubling  in  ten  years'  time  our 
stock  of  gold,  thus  inevitably  depreciating  the  whole 
mass,  but  also,  by  causing  the  new  gold  to  impinge 
on  the  whole  world's  stock  instead  of  on  the  cur- 
rency of  a  single  nation,  the  shock  of  the  new  pro- 
duction on  the  measure  of  value,  though  perceptible, 
w^as  reduced  and  deadened.  The  world's  mass  of 
the  precious  metals  is  comparatively  torpid  beneath 
the  action  of  an  accretion  which  would  break  down 
by  its  w^eight  the  currency  of  a  single  nation.  There- 
fore, the  fluency  of  gold  and  silver,  by  which  they 
pass  easily  in  commerce  to  those  places  where  their 
present  value  in  exchange  is  greatest,  and  return  as 
easily  when  the  conditions  are  reversed,  tends  pow- 
erfully to  make  their  general  value  uniform  through- 
out the  world,  and  consequently  to  make  them  the 
best  medium  of  exchange  and  the  best  measure  of 
value. 

(e.)  On  account  of  this  circumstance,  that  every 
general  rise  or  fall  in  the  value  of  gold  and  silver 
tends  to  check  itself.     This  principle,  indeed,  is  ap- 

1  Report  on  the  Finances,  1863. 


220  ELEaiENTS   OF  POLITICAL  ECONOMY. 

plicable  to  the  value  of  all  commodities,  but  owing 
to  their  quantity  and  durability  preeminently  appli- 
cable to  the  value  of  the  precious  metals.  The  check 
is  double  in  either  direction.  First,  let  us  suppose 
that  the  purchasing-power  of  an  ounce  of  gold  or 
silver  be  rising:  then,  production  will  be  stimulated 
at  all  the  mines,  and  the  more  stimulated  as  the  rise 
is  more,  and  the  new  and  enlarged  supply  \^11  tend 
to  check  a  farther  rise,  and,  unless  the  permanent  de- 
mand has  been  intensified,  to  bring  back  the  value 
to  the  old  point ;  moreover,  when  there  is  a  rise  in 
the  value  of  the  coin,  there  is  a  less  quantity  required 
to  do  the  same  amount  of  business,  and  the  demand 
for  gold  which  causes  the  rise  tends  to  be  checked 
by  the  rise  itself,  because  a  less  quantity  is  needed 
in  the  currency  in  consequence  of  the  rise.  This 
supposes,  of  course,  that  the  exchanges  mediated  by 
money  are  no  greater  than  before.  Thus  a  rise  of 
value  in  gold  and  silver  checks  itself  by  natural 
laws  in  two  ways.  Just  so  of  a  fall  in  their  value. 
Production  is  thereby  slackened  at  the  mines,  and 
the  lessened  supply  tends  to  enhance  value  ;  and,  if 
the  same  business  is  to  be  done  as  before,  there  is  a 
stronger  demand  for  currency  while  the  fall  con- 
tinues, and  this  demand  tends  also  to  restore  the 
value.     AH  this  is  in  the  interest  of  a  steady  value. 

(/.)  On  account,  lastly,  of  this  circumstance,  that 
a  stronger  demand  for  currency  is  met  either  by 
increasing  the  stock  of  coin,  or  by  an  increased 
rapidity  of  circulation  of  that  on  hand.  A  brisker 
demand  for  money,  especially  if  it  be  temporary, 
does  not  necessarily  enlarge  the  supply,  or  alter  the 
value,  but  only  hurry  round  the  existing  circulation. 


ON  MONEY.  221 

Oscillations  in  the  demand  are  responded  to  by  a 
slower  or  more  rapid  circulation.  This  tends  most 
admirably  to  keep  the  value  steady  within  certain 
limits.  When  enterprises  are  multiplying  and  ex- 
changes are  being  permanently  increased  in  number 
and  variety,  then  there  must  be  a  larger  amount  of 
money,  and  this  larger  amount  is  secured  in  the 
ways  already  indicated,  with  perhaps  slight  disturb- 
ances of  value  ;  but  the  temporary  ebbs  and  flows 
of  business  have  no  effect  at  all  on  the  mass  of 
money,  but  only  on  its  movement,  and  its  value  con- 
sequently is  not  disturbed  at  all. 

These  six  grounds  appear  to  be  satisfactory  and 
sufficient  to  account  for  the  superior  steadiness  of 
the  value  of  gold  and  silver,  so  far  as  their  value  is 
determined  by  considerations  relating  to  the  metals 
themselves.  We  now  proceed  to  the  reasons  addi- 
tional to  this  why  gold  and  silver  constitute  the 
best  money. 

(2.)  Because  they  are  self- regulating.  These 
metals  came  to  be,  and  continue  to  be,  money, 
independent  of  the  enactments  of  any  government. 
Government  indeed  coins  them  for  the  use  of  the 
people  ;  but  coinage  is  nothing  in  the  world  but  a 
public  attest  to  the  quantity  and  quality  of  the  metal 
contained  in  the  coin.  For  the  trouble  and  expense 
of  assaying,  stamping,  and  thus  attesting  the  quan- 
tity and  quality  of  the  metal  in  the  coin,  govern- 
ments usually  charge  the  depositors  of  bullion  a 
small  seigniorage ;  England,  France,  and  the  United 
States  charging  at  present  for  gold  coins,  respec- 
tively, three  half-pennies  per  ounce,  which  is  coined 
into  .£3  lis.  10\d,^  ^  of  1  per  cent.,  and  i  of  1  per 


222  ELEMENTS  OF   POLITICAL  ECONOMY. 

cent. ;  so  that  a  very  insignificant  part  of  the  value 
of  coins  is  due  to  the  process  of  coining.  The  value 
of  coined  money  regulates  itself  on  just  the  same 
principles  as  the  value  of  wheat  regulates  itself,  and 
governments  are  as  powerless  to  alter  the  one  as  the 
other.  Indeed,  the  coining  of  either  metal  by  itself 
is  a  matter  of  quantity  and  quality  alone,  and  not  a 
matter  of  value  at  all:  the  United  States  say  by 
law  that  a  gold  dollar  shall  consist  of  25f  grains 
troy,  of  which  nine  parts  shall  be  pure  and  one 
part  alloy,  but  of  the  value  of  this  dollar  thus 
coined  the  law  says  nothing.  It  can  say  nothing. 
The  coin  is  publicly  attested  so  heavy,  so  fine,  and 
thereafter  it  takes  its  chance  as  to  value.  All  gov- 
ernments have  now  learned,  after  oft-repeated  and 
always  vain  trials  to  regulate  the  value  of  their  coins, 
that  all  they  can  do  is  to  regulate  the  amount  and 
fineness  of  the  metals  contained  in  them.  When, 
however,  it  is  designed  that  both  metals  shall  circu- 
late in  the  same  currency,  then  it  becomes  necessary 
that  government  shall  determine,  as  well  as  it  can, 
not  the  absolute  value  of  either,  but  the  relative 
value  of  each  in  each.  And  here  too  the  value  of 
each,  estimated  in  the  other,  regulates  itself  inde- 
pendently of  edicts  or  enactments.  If  the  legislators 
can  ascertain  in  what  proportions  they  are  exchang- 
ing for  each  other  in  a  free  market,  they  may  mark 
that  as  the  legal  relative  value  of  the  two,  but  they 
must  not  suppose  that  their  work  will  not  require 
revision  frota  time  to  time.  In  1792,  when  the  mint 
of  the  United  States  was  established,  the  relative 
value  of  gold  and  silver  was  fixed  by  law  at  1  to  15, 
which  was  the  legal  rate  at  that  time  in  France  and 


ON  MONEY.  223 

other  European  nations.  It  was  soon  noticed,  how- 
ever, that  the  gold  coins  issued  from  the  mint  did 
not  come  much  into  circulation,  but  were  always 
sent  abroad  in  preference  to  silver  to  liquidate  bal- 
ances in  trade.  The  truth  was,  the  ratio  of  1  to 
15  was  an  undervaluation  of  gold,  that  is,  a  legal 
valuation  beneath  the  real  valuation  ;  and  the  gold 
coins  would  not  circulate  in  a  currency  in  which 
they  were  undervalued.  It  was  beneath  their  dig- 
nity. They  preferred  to  go,  and  went,  where  they 
had  more  consideration  in  exchange.  The  law  of 
the  mint  had  tried  to  find  the  true  point  of  relative 
value  as  determined  by  the  laws  of  Nature,  but  did 
not  hit  it,  and  the  real  value  held  right  on  in  spite 
of  mint  and  Congress.  To  remedy  this  state  of 
things,  the  legal  ratio  of  value  was  changed  to  1  to 
16,  in  1834,  being  an  increase  on  the  former  mint- 
valuation  of  gold,  as  compared  with  silver,  of  6i%% 
per  cent.  But  this  was  going  too  far.  Thereafter 
the  silver  coins,  being  legally  undervalued,  were 
worth  more  in  commerce  than  in  the  currency,  and 
the  foreign  balances  were  preferentially  liquidated 
in  silver.  This  continued  till  1853,  when  important 
changes  were  effected.  By  the  preexisting  laws,  gold 
and  silver  coins  were  each  a  legal  tender  for  any 
amount ;  but  at  this  time  silver  ceased  to  be  a  legal 
tender,  except  for  amounts  under  five  dollars;  and  the 
mint  ceased  coining  silver  for  individuals,  and,  buy- 
ing silver  bullion  at  the  market  price,  coined  it  only 
on  government  account,  at  the  same  time  slightly 
debasing  the  coins,  so  that  they  should  not  be  ex- 
ported. Since  1853,  therefore,  gold  has  been  the 
legal  currency  of  the  country,  and  silver  has  been 


224  ELEMENTS  OF  POLITICAL  ECONOMY. 

entirely  subsidiary  to  that,  and  yet  the  value  of  silver 
bullion  has  steadily  maintained  itself  by  natural 
laws,  and  from  November,  1858,  to  January,  1862,  it 
appreciated  from  f  1.21  to  $1.22^  per  ounce  troy ; 
from  which  is  minted  $1.25  in  silver  coins,  making 
the  seigniorage  for  coining,  when  the  price  is  $1.21 
per  ounce,  3tV  per  cent.  In  the  first  decade  of  the 
operation  of  this  law,  $48,513,037.50  of  silver  coins 
issued  from  the  mint.  In  England  silver  is  similarly 
treated ;  since  1817  it  is  legal  tender  only  for  forty 
shillings  and  under,  the  coins  are  slightly  debased,  to 
prevent  their  exportation  as  coins,  and  the  issue  de- 
partment of  the  Bank  of  England  is  only  allowed  to 
hold  silver  as  the  basis  of  circulation  to  the  extent 
of  one  fourth  of  the  gold  coin  and  bullion  held  at 
any  one  time ;  and  yet  silver  maintains  its  own  value 
in  England  in  spite  of  these  disadvantages,  and  is 
thought  to  comprise  about  one  fifth  of  the  whole 
metallic  circulation. 

These  statements  go  to  show  that  the  value  of 
gold  and  silver  is  self-regulating,  and  even  their  rela- 
tive value  in  each  other  is  a  matter  which  govern- 
ments endeavor  to  discover  rather  than  arbitrarily  to 
fix.  The  legal  ratio  has  been  repeatedly  varied  by 
the  governments  under  which  both  metals  were 
legal  tender,  according  as  the  real  relative  value 
varied  or  was  supposed  to  have  varied.  The  gen- 
eral relative  valuation  now  in  Europe  is  1  to  155. 
The  English  overvalue  legally  their  silver  coins,  in 
order  to  keep  them  at  home,  having  made  the  ratio 
1  to  14.287.  For  the  same  reason  the  United  States 
oyervalues  the  silver  coins  in  something  like  the 
same   proportion.     It    may  be   asked,  why  govern- 


ON  MONEY.  225 

ments  attempt  to  maintain  a  double  standard,  if  the 
real  relative  value  of  the  two  metals  be  so  indepen- 
dent of  the  action  of  law,  and  require  so  frequent 
revision  ?  One  answer  is,  that  it  is  a  convenience  to 
have  at  least  two  metals  in  the  currency,  so  that 
silver  coins  may  serve  for  the  lesser  exchanges,  for 
which  gold-pieces  would  be  inconveniently  small; 
and  gold  coins  for  the  greater  exchanges,  for  which 
silver-pieces  would  be  inconveniently  large.  Most 
currencies,  our  own  included,  have  also  a  third  metal 
or  mixture  of  metals,  to  serve  the  purposes  of  the 
smallest  exchanges,  and  the  coins  made  of  this  are 
usually  largely  overvalued,  —  our  nickel  cents  at 
present  cost  the  government  about  half  a  cent, — 
and  are  not  legal  tender  except  to  the  amount  of 
the  smallest  silver  coins.  Our  copper  cents  have 
always  been  rather  counters  than  coins,  and  our 
smaller  silver  coins,  that  is,  the  half-dollars  and 
lesser  pieces,  in  so  far  as  they  are  at  present  de- 
based, so  far  forth  resemble  counters ;  and  there  is 
no  objection  to  this,  so  long  as  their  overvaluation  is 
well  understood,  and  they  are  not  made  legal  tender 
Our  gold  coins  are  value- money  purely,  while  a 
nominal  dollar's  worth  of  the  smaller  silver  coins 
are  intrinsically  l^i^  per  cent,  less  valuable  than 
a  silver  dollar,  and  the  cents  are  about  100  per 
cent,  overvalued.  This  statement  accounts  for  the 
fact  that  the  silver  dollar-piece  does  not  come  into  the 
circulation  at  all,  and  that  the  smaller  silver-pieces 
when  sent  abroad,  as  for  instance  to  Canada  of  late, 
circulate  at  a  large  discount,  or  are  rejected  alto- 
gether. Another  reason  for  the  double  standard, 
especially  in  those  nations  in  which  both  metals  are 

15 


226  ELEMENTS  OF  POLITICAL  ECONOMY. 

a  legal  tender,  is  the  increased  stability  in  value 
thereby  secured  to  the  whole  currency.  The  relative 
value  of  the  two  requires  careful  watching  and  fre- 
quent readjustments,  but  then,  the  immense  quan- 
tity in  the  world  of  both  metals  combined,  and  the 
opportunity  which  the  double  standard  furnishes  of 
replenishing  a  chance  deficiency  of  one  from  the 
the  stores  of  the  other,  give,  in  accordance  with  prin- 
ciples already  explained,  superior  stability  in  value. 

It  is,  then,  a  principal  merit  of  metallic  currencies, 
that  the  gold  and  silver  comprised  in  them  determine 
their  own  value  by  natural  laws,  both  relatively  to 
each  other  and  to  all  other  purchasable  things ;  and 
hence  the  quantity  required  in  each  currency  of  the 
world  to  do  the  business  of  that  country  is  a  matter 
which  natural  laws  are  perfectly  competent  to  regu- 
late, without  any  direct  action  of  government ;  and 
governments  may  be  relieved  from  the  difficult  or 
rather  impossible  task  of  determining  how  much 
money  their  country  shall  have.  The  distribution 
of  the  precious  metals  over  the  earth  by  commerce, 
according  to  the  wants  and  circumstances  of  each 
country,  is  not  perfectly  accomplished  at  present  by 
the  natural  laws  which  are  competent  thus  to  dis- 
tribute them,  because  some  of  the  nations  use  still 
some  form  of  credit-money  as  a  part  of  their  cur- 
rency, and  also  because  all  the  nations  have  not  yet 
come  to  an  agreement  as  to  the  degree  of  fineness  of 
the  metals  used  in  their  respective  coinage.  These 
obstacles  impede  somewhat  at  present  the  action  of 
the  comprehensive  laws  which  will  one  day  be 
allowed  to  control  this  matter  perfectly.  Nature 
herself  has  made  the  first  grand   provision   for  the 


ON  MONEY.  227 

self-regulation  of  the  money  of  the  world,  by  making 
pure  gold  and  silver  of  exactly  the  same  quality  all 
over  the  wide  earth.  No  matter  where  it  is  mined, 
or  when,  gold  is  gold  and  silver  is  silver.  The  gold 
mined  to-day  in  California  differs  in  no  essential 
respect  from  the  gold  used  by  Solomon  in  the  con- 
struction of  the  Temple.  So  that,  if  the  commercial 
nations  would  come  to  a  common  agreement  as  to 
the  amount  of  alloy  they  will  put  into  their  coins, 
and  then  bring  these  coins,  as  might  easily  be  done, 
into  decimal  or  other  easy  numerical  relations  with 
each  other,  it  would  be  a  matter  of  indifference  to 
every  nation  whether  the  coins  circulating  therein 
were  exclusively  national  coins  or  not.  Foreign 
coins,  to  the  extent  to  which  commerce  would  natu- 
rally bring  them  there,  would  have  just  the  same 
circulation  and  credit  as  their  own :  there  would  not 
be,  as  now,  the  trouble  and  expense  of  melting  up 
and  recoinage ;  the  balances  of  trade  could  be  paid 
indifferently  in  any  coinage,  and,  as  we  shall  soon 
see,  every  nation  would  secure  without  friction  or 
legal  enactment  its  due  proportion  of  the  money  of 
the  world.  We  are  not  now  so  far  removed  from 
this  state  of  things  as  might  at  first  sight  be  sup- 
posed. The  gold  napoleons  of  France,  for  example, 
circulate  without  difficulty  all  over  the  continent  of 
Europe,  and  are  largely  current  in  Asia  and  Africa. 
In  respect  to  the  degree  of  fineness,  I  find  by  a  refer- 
ence to  the  Report  of  the  Director  of  the  United 
States  Mint  for  1862,  that  the  standard  of  the  United 
States  for  both  metals,  namely,  -^^  fine,  is  also  the 
standard  of  eight  gold  coins  and  eleven  silver  coins 
of  different  foreign  countries,  while  the  average  of 


228  ELEaiENTS  OF  POLITICAL  ECONOMY. 

all  the  rest  of  the  foreign  coins  would  vary  but  little 
from  that.  France,  the  United  States,  Belgium, 
Switzerland,  and  some  of  the  states  of  Germany, 
have  already  adopted  this  as  the  standard  for  their 
new  coins;  it  is  decimal  and  convenient,  and  the  ten- 
dency seems  to  be  decidedly  towards  its  general 
adoption.  England,  however,  adheres  to  her  old 
standard  of  1^.  If  a  commercial  congress,  like  those 
which  have  been  held  of  late  years  in  Europe,  should 
agree  to  recommend  to  the  governments  the  adop- 
tion of  this  standard,  giving  the  cogent  commercial 
reasons  therefor,  the  recommendation  would  doubt- 
less be  adopted,  and  one  obstacle  to  the  perfect  self- 
regulation  of  the  world's  money  would  be  removed. 
In  respect  to  the  decimal  or  other  easy  numerical 
relation  of  the  different  coins  to  one  another,  that 
would  not  be  a  matter  of  very  great  difficulty.  From 
the  report  just  referred  to  it  appears,  that,  with  a 
very  slight  change  in  the  quantity  of  gold  and  silver 
put  into  their  coins,  the  money  of  all  the  leading 
nations  might  circulate  in  common,  without  the  least 
perplexity.  The  difference  in  value  at  present  is 
very  trifling  between  five  American  dollars,  one 
English  sovereign,  twenty-five  French  francs,  five 
German  rixthalers,  one  hundred  Spanish  reals,  five 
Brazilian  milreis,  and  five  dollars  of  the  Central 
and  South  American  States.  If  by  a  commercial 
congress,  or  otherwise,  the  money  denominations 
of  the  few  remaining  commercial  states  could  be 
brought  into  relation  with  these,  so  that  all  should 
be  divisible  by  five,  then  each  nation  might  keep  its 
own  names  of  coins  with  ^yhich  it  is  familiar,  and 
yet  the  money  of  all  circulate  everywhere  without 
discount  or  difficulty. 


ON  MONET.  229 

Now,  although  the  Bank  of  England  circulates  a 
paper  money  partly  based  on  government  credit, 
and  though  the  United  States  has  under  the  nation- 
al banking  law  a  similar  paper  money  ;  yet  every 
pound  or  dollar  of  this  paper  money  is  or  is  to  be 
redeemable  in  gold  and  silver ;  and,  as  more  than 
half  the  aggregate  circulation  of  Great  Britain  is 
in  metallic  money,  and  as  a  similar  proportion  is 
perhaps  likely  to  prevail  in  the  United  States,  the 
maintenance  of  a  paper  money  based  on  credit  for 
the  home  circulation  alone  may  or  may  not  be  sound 
financial  policy  ;  but  it  is  evident  that  it  cannot,  un- 
der these  circumstances,  substantially  interfere  with 
the  self-regulation  of  the  metallic  money  of  the 
world.  Nevertheless,  that  we  may  see  with  distinct- 
ness the  scope  and  efficiency  of  the  magnificent 
natural  law  which  distributes  the  precious  metals 
over  the  earth  in  accordance  with  the  business-wants 
of  each  nation,  let  us  suppose  that  there  were  no 
paper  money  ;  that  all  the  nations  minted  their  met- 
als with  a  common  proportion  of  alloy ;  and  that 
the  real  relative  value  of  the  two  were  ascertained 
by  law  in  the  countries  where  both  are  legal  tender, 
and  were  well  understood  also  in  the  other  coun- 
tries. In  this  case  there  would  be  no  motive  to 
debase  any  part  of  the  coinage  to  prevent  its  expor- 
tation, and  all  the  money  of  all  the  nations  would 
be  value-money  purely.  Now  then,  money  is  the 
medium  of  exchange,  and  is  wanted  where  the  ex- 
changes are,  and  not  elsewhere,  and  goes  of  neces- 
sity under  freedom  whither  it  is  relatively  most 
wanted,  that  is  to  say,  whither  the  most  can  be 
obtained  for  it  in  exchange.    If  the  country  be  gold- 


230  ELEMENTS  OF  POLITICAL  ECONOMY. 

bearing,  and  its  people  at  the  same  time  be  enter- 
prising in  the  production  of  all  sorts  of  services  for 
exchange  among  themselves,  they  will  retain  enough 
of  their  own  gold  to  mediate  their  own  exchanges, 
for  the  simple  reason  that  they  want  it,  and  have 
services  to  offer  in  exchange  for  it ;  and  if  they  have 
been  allowed  in  freedom  to  develop  their  own  pecu- 
liar advantages,  no  foreign  nation  can  outbid  them 
in  the  offers  they  are  able  to  make  for  a  sufficient 
quantity  of  this  gold.  If  foreigners  draw  away  the 
gold  from  them,  it  shows  that  the  home  people  have 
less  industry  and  less  skill  to  produce  those  things 
which  the  gold-producers  want.  The  home  people 
have  the  advantage  in  one  respect.  They  are  on  the 
spot.  There  is  less  expense  to  them  than  to  foreign- 
ers in  transporting  the  services  offered  in  exchange 
for  th^  gold,  and  also  the  gold  received  in  return. 
If,  with  this  advantage,  foreigners  can  still  outbid 
them  in  offers  for  the  gold,  it  shows  that  they  need 
it  most  and  deserve  it  most,  since  they  have  had  the 
industry  and  the  skill  to  produce  that  which  is  pre- 
ferred by  the  miners  to  the  home  services  offered, 
and  have  also  overcome  an  additional  obstacle.  The 
gold-producer,  like  every  other  producer,  has  the 
right  to  get  the  most  he  can  for  his  service.  Who- 
ever can  offer  him  that  most  has  the  best  right  to 
the  gold.  Therefore  the  gold  goes  in  the  first  in- 
stance into  their  hands,  whether  natives  or  foreign- 
ers, who  offer  the  most  for  it  in  exchange.  If  the 
people  of  the  gold-bearing' country  have  equal  natu- 
ral advantages  with  others  to  produce  those  things 
which  are  wanted  in  exchange  for  their  gold  by 
those  who  practically  work  the  mines,  and  then  fail 


ON  MONEY.  231 

to  get  the  gold  they  need,  the  blame  lies  nowhere 
except  on  their  lack  of  industry  and  skill.  Let  not 
such  people  think  to  find  any  shelter  behind  natural 
laws.  Natural  laws  are  justly  and  eternally  against 
them.  If,  however,  they  are  naturally  placed  at  a 
disadvantage  in  respect  to  those  specific  products  in 
demand  by  the  first  owners  of 'the  gold,  they  are 
then  brought  into  the  same  category  with  non-gold- 
bearing  countries.  They  will  then  get  their  gold  at 
second  hand,  and  if  they  deserve  it,  will  be  just  as 
sure  to  get  it  as  if  they  retained  it  in  the  first  in- 
stance. Every  nation  has  natural  advantages  in 
some  sorts  of  products.  Just  so  soon  as  these  are 
properly  developed,  it  has  some  things  to  offer  to  the 
world  at  a  better  rate  than  anybody  else  can  offer 
them.  Thither,  and  to  buy  those  things,  will  gold 
flow,  if  not  directly  from  the  gold-producing  lands, 
then  indirectly  but  inevitably,  from  those  lands 
where  the  gold  at  present  is.  Under  our  supposi- 
tion, it  makes  no  difference  where  the  gold  came 
from,  or  what  nation  minted  it,  it  is  drawn  by  a 
natural  force  not  to  be  resisted  to  that  people, 
which,  by  offering  services  in  general  demand,  re- 
quires gold  to  mediate  the  exchange  of  those  ser- 
vices. Thus,  by  a  law  as  unerring  as  gravitation, 
the  precious  metals  make  the  circuit  of  the  earth, 
abiding  certainly  in  large  masses  within  all  the  com- 
mercial nations,  because  there  is  where  they  are  con- 
stantly wanted  and  cannot  be  spared,  but  passing 
off  also  perpetually  in  smaller  masses  from  all  the 
great  centres  of  business  towards  those  points  where 
their  purchasing-power  for  the  time  being  is  greater 
than  at  home.     The  one  only  impulse  that  can  stir 


232  ELEMENTS  OF  POLITICAL  ECONOMY. 

the  precious  metals  from  their  usual  haunts,  is  the 
belief  that  elsewhere  they  are  worth  more  in  ex- 
changes ;  and  hence,  just  as  soon  as  the  demand 
for  a  currency  is  fairly  met  in  any  country  by  the 
presence  of  gold  and  silver,  coin  ceases  to  flow 
thither  as  a  permanent  thing,  but  rather  ebbs  and 
fl:)ws  in  obedience  to  the  ever-shifting  exigencies  of 
trade.  The  nation  that  does  a  large  business  will 
require  a  large  stock  of  coin,  will  be  able  to  pay  for 
it,  and  will  inevitably  secure  it ;  a  nation  with  fewer 
exchanges  to  make  will  less  need  the  instrument 
with  which  exchanges  are  made,  will  buy  and  keep 
a  less  quantity;  and  if,  in  the  chances  of  trade, 
more  comes  than  is  needed,  it  flows  off*  at  once  to 
the  places  where  the  demand  for  it  is  stronger ;  and 
thus  the  proportionate  amount  due  to  the  commer- 
cial interests  of  every  nation  goes  thither  under  a 
natural  law,  and  abides  there  under  a  natural  law. 
Hence  the  general  purchasing-power  of  gold  and 
silver  tends  steadily  to  an  equality  the  world  over. 
If  it  be  appreciably  higher  in  one  nation  than  in 
the  others,  the  metals  are  drawn  toward  that  nation 
by  an  irresistible  attraction  till  the  equilibrium  is  re- 
stored. Add  to  this,  that  there  is  at  all  times  a  vast 
reservoir  of  plate  from  which  any  sudden  or  steady 
demand  for  currency  can  easily  be  supplied,  and  in- 
to which  any  fortuitous  or  steady  superfluity  can 
as  readily  be  drained,  and  the  reasons  are  apparent 
why  gold  and  silver  currencies  are  self-regulating  in 
value  and  amount.  If,  on  the  other  hand,  a  cur- 
rency is  to  be  of  paper,  independent  of  gold  and 
silver,  there  is  no  self-regulation  about  it :  we  pass 
at  once  from  the  region  of  natural  laws  into  the 


ON  MONEY. 

region  of  statute  and  enactment ;  somebody  must 
take  upon  themselves  to  decide  how  much  of  this 
paper  there  shall  be,  —  a  power  which  could  not  be 
lodged  in  more  dangerous  hands  than  in  those  which 
thought  themselves  competent  to  exercise  it. 

(3.)  Because  they  are  conveniently  portable^  divis- 
ible, and  impressible.  Our  proposition  is,  that  gold 
and  silver  constitute  the  best  money ;  and  in  proof 
of  this  we  have  already  demonstrated  the  steadiness 
of  their  value,  and  their  self-regulating  power;  inci- 
dental to  these  great  advantages  are  the  material 
qualities  of  these  metals,  by  which  they  are  admi- 
rably fitted  to  be  the  money  of  the  nations.  Their 
weight  is  little  relatively  to  their  value.  A  thousand 
dollars  in  gold  are  not  indeed  carried  so  easily  as  a 
bill  of  exchange  or  a  bank-note ;  and  expedients  are 
easily  adopted,  and  always  have  been  used,  by 
which  the  transfer  in  place  of  large  masses  of  coin 
is  for  the  most  part  obviated ;  and  our  proposition 
does  not  deprecate  at  all  the  use  of  the  economiz- 
ing expedients  of  commerce  ;  but  for  the  money  of 
the  people,  for  the  currency  that  passes  from  hand 
to  hand  in  ordinary  exchanges,  we  maintain  that 
gold  and  silver  are  sufficiently  portable.  A  pound 
weight  of  English  sovereigns,  which  one  can  put  in 
a  glove-finger  and  carry  in  his  vest-pocket,  almost 
without  knov/ing  it,  is  worth  about  $230;  and  the 
experience  of  those  countries,  like  France  and  Ger- 
many at  present,  where  the  money  is  mostly  metallic, 
has  not  pronounced  it  onerous  on  account  of  its 
weight.  At  any  rate,  it  is  better  to  accept  all  the 
other  immense  advantages  of  gold  and  silver  money, 
together  with  a  little  inconvenience  as  to  weight,  if 


234  ELEMENTS   OF  POLITICAL  ECONOMY. 

one  chooses  to  insist  on  that,  than  to  adopt  substi- 
tutes every  way  inferior  as  money,  except  that  they 
are  lighter  in  our  purses. 

Moreover,  gold  and  silver  differ  from  jewels,  and 
most  other  precious  things,  in  that  masses  of  them 
are  divisible,  without  any  loss  of  value,  into  pieces 
of  any  required  size.  The  aggregate  of  pieces  is 
worth  as  much  as  the  mass,  and  the  mass  as  much 
as  the  pieces.  For  currency  purposes  this  is  a  great 
advantage.  For  its  utmost  convenience,  business 
requires  a  considerable  variety  of  coins,  and  if  any 
of  these  kinds  be  minted  in  quantity  in  excess  of 
the  demand,  nothing  more  is  required  than  to  remint 
them  in  other  denominations,  and  their  whole  value 
is  saved  to  the  currency  in  the  most  convenient 
form.  It  is  this  quality  which  enables  coins  to  flow 
into  plate  whenever  the  metal  in  them  becomes 
more  valuable  in  the  form  of  plate,  and  plate  again 
to  flow  back  into  coins  whenever  the  metal  in  it  is 
more  in  demand  as  coin. 

Lastly,  these  metals  are  capable  of  receiving  and 
retaining  any  stamp  which  government  chooses  to 
impress  upon  them.  A  certain  proportion  of  alloy, 
say  -^(j,  hardens  them  to  such  a  degree  that  they  ex- 
hibit with  sharp  distinctness  the  cut  of  the  die,  and 
permanently  retain  its  impress.  This  quality  of  the 
metals,  when  they  are  skilfully  coined  by  the  im- 
proved machinery  of  modern  times,  makes  the 
pieces  of  money  objects  of  beauty,  and  practically 
indestructible  also,  since  the  perfect  circular  form, 
the  device  covering  the  whole  piece,  the  milled  and 
fluted  edges,  make  clipping  w^ithout  detection  im- 
possible, while  the  hardness  of  the  pieces  makes  the 


ON  MONEY.  235 

annual  loss  of  weight  by  abrasion  scarcely  appre- 
ciable. The  Director  of  the  United  States  Mint,  in 
his  Report  for  1862,  gives  the  results  of  some  care- 
ful and  comprehensive  experiments  made  at  the 
mint  to  ascertain  the  yearly  loss  of  coins  by  the 
ordinary  wear  and  tear  of  circulation.  Thfese  re- 
sults are  exceedingly  interesting  and  important,  and 
throw  to  the  winds  the  haphazard  conjectures  of  a 
host  of  writers  on  either  side  of  the  Atlantic.  On 
our  silver  coins,  taken  promiscuously,  the  average 
annual  loss  from  abrasion  was  ascertained  to  be 
one  part  in  630 ;  while  the  gold  coins  were  tested 
separately,  with  this  satisfactory  conclusion,  that  the 
half-eagle  averages  a  loss  per  annum  of  one  part  in 
8550,  the  double-eagle  one  in  9000 ;  and  a  cautious 
estimate  as  to  the  proportions'  of  the  various  sizes 
of  coin  actually  in  circulation  in  the  United  States, 
made  of  the  two  metals,  leads  consequently  to  the 
conviction  that  the  average  yearly  waste  by  wear  on 
all  the  coins  does  not  exceed  one  part  in  2400.  The 
cost,  therefore,  of  maintaining  a  metallic  circulation 
is  by  no  means  so  great  as  it  has  been  usually  repre- 
sented. An  instrument  in  constant  use  that  requires 
only  2100  of  its  value  for  its  yearly  repair,  and  per- 
forms exceeding  well  the  most  delicate  and  impor- 
tant functions,  is  a  cheap  and  durable  instrument. 

From  these  three  main  reasons,  we  conclude  that 
gold  and  silver  are  the  best  money. 

4.  An  inferior  money ^  so  long  as  it  circulates  at  ally 
invariably  drives  a  superior  money  out  of  the  circula- 
tion. 

This  is  a  fundamental  law  of  finance,  and  has 
been  illustrated  over  and  over  again  in  every  age  and 


236  ELEMENTS  OF  POLITICAL  ECONOMY. 

nation.  It  is  as  solid  as  the  substance  of  truth  can 
make  it,  though  it  looks  at  first  sight  like  a  paradox. 
We  naturally  think  that  what  is  excellent  tends 
rather  to  displace  what  is  inferior,  but  with  money 
the  exact  reverse  is  the  law,  and  the  perfect  coin  of 
full  weight,  instead  of  driving  out  the  light  and  the 
debased  pieces,  is  always  itself  driven  out  of  the 
circulation  by  them.  The  reason  is  obvious  from 
the  nature  of  money.  Money  is  merely  an  instru- 
ment of  exchange,  and  nobody  wants  it  except  to 
buy  with,  and  so  long  as  the  government  and  the 
community  treat  light  coin  and  full  coin  as  of  equal 
value,  receiving  them  indifferently  in  payment  of 
debts  and  of  taxes,  it  is  clear  that  nobody  will  give 
in  payment  of  debts  and  of  taxes  that  which  is  really 
worth  more  so  long  as  that  which  is  really  worth  less 
will  go  just  as  far.  The  inferior  pieces  will  abide  in 
a  market  where  they  will  fetch  just  as  much  as  the 
superior  pieces,  while  the  superior  pieces  will  take 
on  a  form  or  migrate  to  a  place  in  which  some 
advantage  can  be  gained  from  their  superiority. 
Thrown  into  the  crucible,  or  exported  in  commerce, 
this  superiority  immediately  manifests  itself;  and 
therefore  into  the  crucible  or  into  the  channels  of 
foreign  trade  it  might  be  confidently  predicted  before- 
hand that  such  money  would  be  thrown,  and  all  ex- 
perience testifies  with  one  voice  that  exactly  those 
are  the  destinations  of  such  money.  Mr.  Macaulay, 
in  the  twenty-first  chapter  of  his  history,  mentions 
that  Aristophanes,  the  Greek  comic  poet,  in  the  fifth 
century  before  Christ,  was  the  first  writer  who  has 
noticed  the  fact  that  where  good  money  and  bad 
money  are  thrown  ir^  together  the  bad  money  drives 


ON  MONEY.  ^  237 

out  the  good.  The  verses  of  the  poet  allude  to  the 
tendency  as  well  known,  ajid  refer  it  to  the  naturally- 
depraved  taste  of  his  fellow-citizens,  like  that  which 
led  them  to  entrust  state  affairs  to  such  men  as 
Cleon,  whom  he  was  satirizing ;  but,  in  truth,  as  we 
have  seen,  the  tendency  results  from  the  common 
sense  of  men,  which  revolts  at  the  idea  of  using  a 
dearer  instrument  when  a  cheaper  one  will  answer 
just  the  same  purpose. 

Out  of  a  crowd  of  good  illustrations  of  this  law,  I 
shall  first  select  two  which  occurred  in  purely  metal- 
lic currencies.  The  Dutch  city  of  Amsterdam  be- 
came in  the  seventeenth  century  a  centre  of  trade 
for  all  Europe.  The  mercantile  honor  and  solid 
financial  ability  of  its  merchants  was  proverbial  all 
over  the  world;  and  yet  it  was  noticed,  about  the 
year  1609,  that  bills  of  exchange  on  Amsterdam 
were  always  below  par  in  other  countries.  The 
merchants  had  never  failed  to  meet  all  the  paper 
drawn  on  them  with  the  utmost  promptness,  and  the 
discount  on  this  paper  in  other  markets  was  a  won- 
der to  everybody.  On  search,  however,  it  was  found 
that  the  cause  of  all  this  was  in  the  currency  of  the 
city.  The  extensive  trade  of  Amsterdam  brought 
into  it  large  quantities  of  dipt  and  worn  foreign  coin, 
which  circulated  in  the  currency  of  the  city,  and 
reduced  its  value  about  nine  per  cent,  below  that  of 
good  money  fresh  from  the  mint.  It  was  noticed, 
that  the  good  money  of  full  weight  which  the  mint 
of  Amsterdam  poured  into  the  circulation  by  wagon- 
loads,  did  not  stay  in  the  circulation  ;  that  very  few 
of  such  pieces  were  told  out  in  the  daily  exchanges ; 
it  was   ascertained  that  they  were   melted   up,   or 


238  ELEMENTS  OF  POLITICAL  ECONOMY. 

carried  away  to  other  countries,  in  either  of  which 
cases  their  value  corresponded  to  the  value  due  to 
their  weight  and  fineness,  while  at  home  in  the  cur- 
rency their  value  only  corresponded  to  the  average 
value  of  the  depreciated  coins  which  constituted  the 
bulk  of  the  circulation.  Bills  of  exchange,  conse- 
quently, drawn  on  Amsterdam  w^ere  liable  to  be 
paid  in  this  depreciated  coin,  and  the  exchange  was 
against  the  city  even  more  than  the  coin  was  depre- 
ciated ;  because,  the  currency  in  such  an  uncertain 
state  was  naturally  valued  abroad  even  below  what 
it  was  really  worth.  To  meet  this  state  of  things, 
and  bring  up  its  exchanges  to  par,  the  city  of  Am- 
sterdam, in  1609,  established  its  celebrated  bank. 
The  bank  received  the  dipt  and  worn  coin  which 
was  circulating  in  the  city,  at  its  true  value  accord- 
ing to  present  weight  and  fineness,  and  after  deduct- 
ing a  small  charge  for  expense  of  recoining,  and 
another  small  charge  for  management,  gave  a  credit 
on  its  books  for  the  remainder.  This  credit  was 
called  bank-money;  it  represented,  guilder  for  guilder, 
money  actually  in  deposit,  and  money  too  exactly 
according  to  the  standard  of  the  mint.  The  city 
ordered  that  all  bills  drawn  on  Amsterdam  of  more 
than  six  hundred  guilders'  value,  should  be  paid  in 
bank-money  ;  thus  every  considerable  merchant  was 
obliged  to  open  an  account  with  the  bank,  and  make 
his  deposit.  This  instantly  took  away  all  uncertainty 
from  bills  of  exchange  drawn  on  Amsterdam.  They 
went  up  to  par  at  once  in  every  market  in  Europe. 
This  was  the  basis  of  the  simple  and  beneficent 
operations  of  the  Bank  of  Amsterdam,  an  institution 
which  enjoyed  unlimited  credit  in  the  commercial 


ON  MONEY.  239 

world  for  nearly  two  hundred  years.  The  conven- 
ience of  this  bank-money;  its  unvarying  character;  its 
security  from  fire,  robbery,  and  other  accidents ;  the 
fact  that  the  city  was  bound  for  it ;  and  the  demand 
for  it  occasioned  by  the  fact  that  every  merchant 
must  have  some  of  it,  that  is,  must  keep  an  account 
with  the  bank,  in  order  to  pay  his  foreign  bills  of 
exchange,  gave  the  certificate  of  deposit,  or  the  bank- 
money,  a  constant  premium  of  about  five  per  cent, 
over  the  good  coin  of  full  weight  which  came  into 
circulation  without  difficulty  as  soon  as  the  poorer 
coins  were  drawn  into  the  bank  for  recoinage. 

At  the  close  of  the  same  century,  a  similar  series 
of  events  occurred  on  a  much  larger  scale  in  Eng- 
land.^ The  old  silver  coinage  of  England  was  by  a 
rude  process  introduced  into  that  country  by  artists 
from  Florence  as  early  as  the  thirteenth  century. 
The  pieces  were  shaped  and  stamped  by  the  hammer. 
They  contained  some  a  little  less  and  some  a  little 
more  than  the  due  amount  of  silver ;  few  of  them 
were  perfectly  circular ;  the  edges  were  neither  milled 
nor  fluted ;  the  image  of  the  sovereign  occupied  the 
centre  of  the  pieces,  and  the  superscription  ran  around 
the  edge,  but  not  so  near  it  as  that  the  letters  were 
necessarily  impaired  by  a  little  clipping.  Conse- 
quently it  was  easy  to  pare  off  a  pennyworth  or  two 
of  silver  from  the  crowns,  half-crowns,  and  shillings, 
and  then  pass  them  along.  It  became  a  profitable 
branch  of  industry.  It  was  in  vain  that  Elizabeth 
enacted  that  the  clipper  should  be  henceforth  liable 
to  the  penalties  of  high  treason.  About  the  time  of 
the  Restoration,  that  is,  about  1660,  it  was  noticed 

1  Macaulay's  History,  Chap.  21. 


240  ELEMENTS  OF  POLITICAL  ECONOMY. 

that  a  large  proportion  of  the  silver  coin  of  the 
realm  had  undergone  some  degree  of  mutilation. 
At  that  time  a  new  process  of  coinage  was  brought 
in.  A  mill  worked  by  horses  fabricated  the  new 
coins  on  better  principles.  They  were  exactly  round, 
and  the  edges  were  inscribed  with  a  legend,  and  they 
were  all  of  just  and  equal  weight.  They  were 
thrown  out  into  the  circulation  to  pass  current  with 
the  ham.mered  money,  and  it  seems  to  have  been 
expected  that  they  would  soon  come  to  displace  it. 
But  they  did  not.  Both  were  received  at  first  with- 
out distinction  by  the  individual  traders  and  by  the 
public  tax-gatherers.  But  it  was  not  long  before  the 
milled  money  was  noticed  to  be  scarce.  One  hardly 
saw  a  piece  of  it  in  a  fortnight.  The  horses  at  the 
mint  were  all  the  time  tugging  away,  and  the  bags 
of  fresh  money  were  carried  continually  from  London 
Tower  to  London  town,  but  the  new  money  never- 
theless became  scarcer  every  day.  In  the  payments 
made  at  the  Treasury  not  one  piece  in  two  hundred 
was  milled  silver,  and  a  merchant  complained  that, 
being  paid  a  debt  of  thirty-five  pounds,  he  only  got 
one  half-crown  of  good  money.  Indeed,  the  money 
was  getting  perpetually  worse.  False  coiners  mul- 
tiplied, and  clippers  abounded  more  and  more.  The 
penalties  of  an  extreme  law  were  utterly  powerless 
to  restrain  the  mutilation  of  the  coins;  until,  at  length, 
public  opinion  decidedly  turned  against  the  promis- 
cuous hanging  of  clippers ;  officers  were  reluctant  to 
arrest,  and  juries  reluctant  to  convict,  and  the  people 
sympathized  with  the  sufferers  as  only  guilty  of  a 
moderate  fault.  Thus  things  went  on  till  1695. 
The  lighter  the  old  coins  became,  the  scarcer  became 


ON  MONEY.  241 

the  new  ones;  for  who  would  pay  two  ounces  of 
silver  when  one  ounce  was  legal  tender?  The  new 
money  was  melted,  was  exported,  was  hoarded,  but 
circulate  it  would  not.  At  length  the  lightest  pieces 
began  to  be  refused  by  some  people,  and  other  peo- 
ple demanded  that  their  silver  should  be  paid  to  them 
by  weight  and  not  by  tale,  and  there  was  wrangling 
over  every  counter,  and  a  dispute  at  every  settlement, 
and  the  coin  was  really  so  diverse  in  its  value  that 
there  was  no  longer  any  measure  of  value  in  the 
kingdom  ;  business  was  in  utmost  confusion,  society 
was  by  the  ears,  poor  people  were  unmercifully 
fleeced,  and  shrewd  ones  grew  enormously  rich  ; 
and  the  Jacobites  secretly  exulted  in  the  hope  of 
being  able  to  avail  themselves  of  the  prevailing  dis- 
content to  overthrow  the  scarcely  established  revolu- 
tionary government  of  William  and  Mary  ;  when, 
by  the  joint  counsels  of  two  such  philosophers  as 
Locke  and  Newton,  and  two  such  statesmen  as 
Somers  and  Montague,  the  government  took  the 
bold  resolution  of  recoining  all  the  silver  of  the  king- 
dom. An  early  day  was  fixed  by  Parliament,  after 
which  no  clipped  money  could  pass  except  in  pay- 
ments to  government,  and  a  later  day  after  which  it 
could  not  pass  at  all.  It  was  wisely  determined  that 
the  loss  on  the  clipped  money  should  be  borne  by  the 
whole  public,  and  not  by  the  present  holders  of  it ; 
and  it  was  estimated  that  £1,200,000  would  be  re- 
quired to  make  up  the  currency  to  the  old  standard 
of  weight  and  fineness ;  and  this  sum  the  Bank  of 
England,  just  established,  was  willing  to  advance 
on  the  security  of  some  new  and  good  tax ;  and  the 
window-tax  was  passed  to  raise  the  money ;  the  old 

16 


242  ELEMENTS  OF  POLITICAL  ECONOMY. 

coins  were  rapidly  drawn  in,  melted  up,  and  re- 
coined,  and  thereafter  there  was  no  difficulty  in 
keeping  the  circulation  full  of  milled  pieces  of  full 
weight. 

In  mixed  currencies,  the  financial  law  we  are  now 
treating  has  a  similar,  but  if  possible  a  more  disas- 
trous operation.  If  the  paper  in  circulation  be  not 
nominally  redeemable  in  gold  and  silver,  then  as 
soon  as  it  depreciates  below  the  value  of  gold  and 
silver,  as  such  paper  has  never  yet  failed  to  depreci- 
ate in  a  short  time,  it  drives  the  metals  completely 
out  of  the  circulation,  and  keeps  them  out  just  so 
long  as  itself  circulates,  or  until  the  quantity  of  such 
paper  is  so  reduced  and  its  character  so  improved 
that  it  rises  again  to  a  par  value  with  the  metals,  in 
which  case,  though  it  has  never  to  my  knowledge 
actually  occurred,  the  metals  would  come  back  into 
the  currency  alongside  of  the  paper.  The  sudden- 
ness and  the  thoroughness  with  which  the  gold  and 
silver  w^ill  abandon  a  currency  of  which  a  depreci- 
ated, irredeemable  paper  forms  a  part,  was  illustrated 
on  a  large  scale  in  this  country  in  1862.  A  gigantic 
civil  war  had  been  in  progress  in  the  nation  for  a 
year ;  difficulties  and  disasters  had  thickened  around 
the  path  of  the  government ;  its  financial  embarrass- 
ments were  of  the  most  formidable  kind ;  and  yet, 
until  April  of  that  year,  1862,  the  paper  money  of  the 
loyal  States,  which  consisted  of  about  $140,000,000 
of  bills  of  the  various  State  banks,  had  not  much 
depreciated  as  compared  with  coin.  In  January, 
indeed,  when  the  national  government  had  added  to 
this  mass  of  paper  about  $30,000,000  of  demand- 
notes,  gold  was  at  a  premium  of  five  per  cent. ;  but 


ON  MONEY.  243 

as  soon  as  the  law  authorizing  the  issue  of  national 
legal-tender  notes  was  passed,  the  government  drew 
in  the  demand-notes,  and  for  a  little  interval  the 
paper  currency  was  reduced  to  about  $140,000,000, 
and  on'  the  first  day  of  April,  when  the  legal-tenders 
were  ready  for  circulation  but  not  yet  issued,  the 
coin  bore  a  premium  of  only  one  per  cent.  It  had 
not  yet  in  any  sense  abandoned  the  circulation.  The 
State  banks  had  all  suspended  specie  payments  on 
the  last  day  of  the  preceding  year,  but  had  not  yet 
much  expanded  their  usual  circulation.  And  now 
it  is  to  be  noticed  that  the  steady  depreciation  of 'the 
paper  currency  of  the  country,  both  state  and  national, 
commenced  at  the  very  time  when  the  national  legal- 
tender  notes  were  thrown  into  the  circulation.  All 
the  paper  was  now  irredeemable,  and  its  volume  was 
now  expanded,  and  the  depreciation  begun ;  it  was 
liable  to  still  further  expansion,  both  from  the  absence 
of  restraint  on  the  circulation  of  the  State  banks  and 
from  the  urgent  necessities  of  government  leading 
to  the  issue  of  more  legal-tenders,  and  the  deprecia- 
tion continued.  In  May  it  was  three  per  cent.,  June 
nine  per  cent.,  July  fifteen  per  cent.,  September  twen- 
ty-one per  cent,  October  twenty-nine  per  cent,  and 
December  thirty- two  per  cent.  Step  by  step,  as  the 
volume  of  the  currency  increased,  did  its  value  de- 
crease as  compared  with  gold  ;  and  what  is  more  to 
the  present  purpose,  no  sooner  did  the  depreciation 
become  sensible,  than  the  scarcity  of  coin  became 
sensible  also,  and  in  a  very  few  weeks'  time  the 
currency  was  swept  utterly  bare  of  metallic  money. 
The  silver  went  first,  and  then  the  gold ;  and  a  little 
later  even  the  copper  cents  followed  the  example  ; 


244  ELEMENTS  OF  POLITICAL  ECONOMY. 

and  the  government  was  obliged  to  authorize  the 
use  of  its  postage  and  revenue  stamps  for  small 
change  ;  and,  until  it  was  prohibited  by  law,  cities, 
corporations,  and  individuals  issued  shinplasters  and 
metal  tokens  of  various  kinds  to  take  the  place  of 
the  small  coins.  This  present  writing  is  at  the  sum- 
mer solstice  of  1865,  but  with  the  exception  of  a  few 
of  the  cents,  the  coins  have  not  yet  returned  to  the 
circulation,  for  the  sufficient  reason  that  the  paper- 
money  is  still  depreciated  as  compared  with  them. 
The  war  is  over,  peace  has  returned,  business  is  re- 
viving, and  a  career  of  unprecedented  prosperity  is 
opening  up  before  the  country,  but  the  coins  have 
not  come  back,  and,  under  the  commonest  principles 
of  human  nature,  cannot  come  back,  until  the  paper 
dollar  of  the  country  is  equal  in  purchasing-power  to 
the  gold  dollar,  and  is  redeemable  in  that.  Since 
April  1st,  1862,  the  paper  money  has  varied  from 
par  to  one  hundred  and  eighty-five  below  par,  and  is 
to-day  about  forty  per  cent,  below  par.  The  whole 
body  of  the  paper  money  now  in  the  country  at  large 
cannot  fall  much  short  of  $1,000,000,000,  of  which 
about  $700,000,000  are  in  national  legal-tender  and 
fractional  money,  and  the  rest  about  equally  divided 
between  the  bills  of  the  new  national  banks  and  the 
bills,  now  being  retired,  of  the  old  State  banks. 

So  long  as  the  paper  money  of  a  country  is  nomi- 
nally redeemable  in  gold  and  silver,  the  operation  of 
the  law  we  have  in  hand  is  somewhat  peculiar.  In 
times  of  ordinary  confidence  and  prosperity  the  paper 
and  the  coin  circulate  indifferently  together,  and  an 
undue  increase  of  the  paper  beyond  the  just  demands 
of  business  does  not  indicate  itself  in  a  premium  oil 


\ 


ON  MONEY.  .  245 

the  coin,  but  the  whole  circulation,  gold  and  paper, 
goes  down  together,  and  the  depreciation  is  of  course 
indicated  in  a  general  rise  of  prices.  There  is  noth- 
ing anomalous  in  this,  for  increase  of  supply,  other 
things  as  before,  always  lowers  the  value  of  any- 
thing;  and  the  direct  interest  of  the  parties  who 
furnish  the  paper  leads  them  to  increase  their  circu- 
lation as  much  as  they  fairly,  and  sometimes  as 
much  as  they  unfairly,  can.  But  a  market  in  which 
prices  are  high  and  gold  is  still  circulating  is  a  good 
market  to  sell  in,  and  increased  importations  never 
fail  to  accompany  a  rise  of  prices  caused  by  the  de- 
preciation of  a  mixed  currency.  In  the  home  market 
the  paper  is  still  as  good  as  gold,  but  to  pay  the 
balances  in  a  foreign  trade  it  is  good  for  nothing. 
The  natural  superiority  of  the  gold  to  paper  appears 
as  soon  as  a  payment  is  to  *  be  made  abroad.  In 
obedience  to  this  impulse  gold  naturally  and  inevita- 
bly goes  abroad ;  and  it  has  repeatedly  gone  abroad 
under  these  circumstances  from  the  United  States  to 
such  an  extent  that  the  parties  who  furnished  the 
paper,  that  is  to  say,  the  banks,  could  no  longer  re- 
deem their  paper  in  coin,  but  were  obliged  to  suspend 
specie  payments,  which  is  a  euphonious  circumlocu- 
tion to  express  going  into  temporary  or  permanent 
bankruptcy.  In  this  case  also,  though  less  directly, 
the  inferior  money  pushes  the  superior  out  of  circu- 
lation. I  have  no  hesitation  in  calling  the  paper  the 
inferior  money,  both  for  other  potent  reasons  soon  to 
be  specified,  and  because  at  any  rate  it  is  powerless 
in  international  exchanges.  There  is  believed  to  be 
nothing  in  the  monetary  history  of  the  United  States, 
as  there  is  certainly  nothing  in  the  known  principles 


246  ELEMENTS  OF  POLITICAL  ECONOMY. 

of  human  nature,  which  does  not  abundantly  con- 
firm as  a  universal  truth  the  proposition  in  hand, 
namely,  that  worse  and  better  money  being  in  the 
currency  together,  the  worse  will  expel  the  better 
sooner  or  later;  sometimes  into  hoards,  sometimes 
into  the  melting-pot,  and  sometimes  out  of  the 
country. 

5.  A  paper  money  is  only  tolerable  when  it  is  actti- 
ally  and  instantly  convertible  on  demand  into  gold  and 
silver. 

I  lay  down  this  proposition,  and  shall  attempt  to 
prove  it,  well  aware  that  it  is  directly  opposed  to  the 
views  of  the  late  and  able  writers  on  money,  Mr. 
Carey  and  Mr.  Moran.  I  differ  with  such  a  man  as 
Mr.  Carey,  to  whom  I  have  already  acknowledged 
my  obligations,  with  regret ;  but  I  cannot  help  op- 
posing, to  the  extent  of  my  ability,  his  doctrines  on 
money  and  on  foreign  trade,  because,  after  thoroughly 
canvassing  them,  I  am  persuaded  that  they  are  fun- 
damentally and  perniciously  erroneous.  Both  these 
writers,  Mr.  Moran  more  distinctly,  advocate  a  paper 
money  based  simply  on  the  credit  of  the  issuers  ; 
they  advocate  the  principle  that  the  manufacture  of 
money  should  be  as  free  as  the  manufacture  of  coats ; 
that  every  man,  or  association  of  men,  so  choosing, 
should  open  what  they  call  a  money-shop  to  supply 
the  community  with  money ;  and  that  no  public  reg- 
ulation of  the  quantity  or  quality  of  such  money 
should  be  attempted  or  desired.  In  developing  the 
present  proposition  some  reasons  will  appear  for  dis- 
senting totally  from  these  views. 

It  is  here  necessary  to  anticipate  the  discussions  of 
a  subsequent  chapter  so  far  as  to  define  Credit  as  the 


ON  MONEY.  247 

sale  of  a  service  for  which  the  return  is  not  yet  re- 
ceived^ but  only  promised.  In  an  exchange  proper, 
two  services  are  reciprocally  rendered  by  two  persons, 
and  the  transaction  is  then  and  there  terminated; 
but  in  simple  credit,  one  service  is  rendered,  and  the 
return  service  is  delayed,  and  usually  some  paper 
'evidence  that  such  service  is  due  springs  up  in  con- 
nection with  the  transaction.  It  is  an  exchange 
begun,  but  not  yet  consummated,  and  no  matter 
through  how  many  hands  the  paper  evidence  may 
pass,  it  is  nothing  but  an  obligation  resting  on  some- 
body to  pay  to  somebody  the  return  for  a  service 
which  has  been  actually  rendered.  Now  the  grand 
distinction,  and  one  of  the  utmost  importance,  be- 
tween gold  and  silver  money  and  paper  money  is, 
that  paper  money  always  has  in  it  the  element  of 
credit,  while  the  other  has  in  it  no  element  of  credit 
at  all.  A  gold  eagle  is  not  a  sign  of  anything,  it  is 
not  the  representative  of  anything ;  it  stands  in  its 
own  right,  just  as  a  bushel  of  wheat  does  ;  it  is  true 
that  its  only  use  as  money  is  to  purchase  other  things, 
but  its  purchasing-power  is  within  a  trifle  as  great 
whether  it  be  in  the  form  of  money  or  bullion  ;  and 
therefore  a  service  that  is  paid  for  in  specie  closes 
up  the  transaction  completely,  the  exchange  is  con- 
summated, there  is  no  element  of  delay,  of  promise, 
of  credit  in  such  an  exchange.  It  is  just  as  when 
the  miller  renders  a  bushel  of  corn  to  his  neighbor, 
and  that  neighbor  renders  him  a  day's  labor  in  re- 
turn. In  both  cas6s,  there  is  an  end.  But  paper 
money  is  credit-money.  It  may  be  more  convenient 
than  real  money  ;  its  value,  that  is  to  say,  its  pur- 
chasing-power, may  be  equal  to  that  of  real  money; 


248  ELEMENTS  OF  POLITICAL  ECONOMY. 

it  may  even  in  some  circumstances  bear  a  premium 
over  real  money  ;  but  all  this  does  not  alter  the  fact 
that  there  is  in  it  an  unlucky  element,  an  unstable 
element,  an  element  which,  as  men  are,  is  liable  to 
some  suspicion,  the  element,  namely,  of  a  present 
promise  to  be  fulfilled  in  future.  Paper  money  walks 
by  faith,  and  not  by  sight.  It  is  the  sign,  and  not  the 
thing  signified.  It  is  the  representative  of  something, 
and  not  that  something  itself.  It  is  a  promise  to 
pay,  and  not  the  pay  itself.  It  is  a  credit,  and  not  a 
service.  And  what  makes  this  very  certain  is,  that 
all  paper  money  knows  it  to  be  true  about  itself.  It 
bears  this  truth  stamped  on  its  very  face.  It  does  not 
even  profess  to  stand  on  its  own  bottom,  but  leans 
consciously  and  conspicuously  on  some  solid  support. 
The  French  assignats  promised  to  redeem  themselves 
in  land  ;  the  continental  bills  of  the  old  American 
Congress  were  all  to  be  paid  in  Spanish  milled  dol- 
lars ;  an  $100  note  of  the  late  so-called  "  Confeder- 
ate States  of  America,"  now^  lying  before  me,  speaks 
complacently  of  a  redemption  to  take  place  "  two 
years  after  the  ratification  of  a  treaty  of  peace  with 
the  United  States  of  America  "  ;  the  bills  of  the  Bank 
of  England  profess  to  be,  and  are,  redeemable  in  gold 
and  silver;  the  present  irredeemable  legal-tender  notes 
of  the  United  States  are  all  fundable  in  a  six  per 
cent,  government  stock,  of  which  the  interest  and 
principal  are  payable  in  coin ;  and  the  bank  bills  of 
the  country,  both  state  and  national,  are  nominally 
or  actually  convertible  into  specie. 

Since,  then,  the  various  forms  of  paper  money, 
even  the  best  of  them,  are  mere  promises  to  pay  on 
demand,  it  must  be  conceded  that  they  are  credit- 


ON  MONEY.  249 

money ;  and  the  question  is  narrowed  down  to  this, 
whether  the  functions  of  money  can  be  well  per- 
formed by  the  evidences  of  an  obligation  to  pay  for 
services  already  received.  It  is  not  denied  that  such 
evidences  frequently  have  value,  that  their  value  is 
sometimes  equal  and  sometimes  superior  to  an  equiv- 
alent sum  in  gold ;  the  question  is  whether  in  their 
nature  they  can  constitute  a  good  money.  In  re- 
solving this  question,  it  must  be  noticed,  that  the 
fact  of  indebtedness  is  not  of  itself  an  evidence  of 
an  ability  to  pay:  individuals,  corporations,  and  gov- 
ernments have  often  become  bankrupt  through  the 
disproportion  of  indebtedness  to  ability.  It  must  be 
noticed,  also,  that,  in  the  light  of  human  nature  and 
experience,  men  in  all  capacities  are  more  or  less 
willing  to  accept  the  services  of  others  without  ren- 
dering the  equivalent  return,  even  when  their  obliga- 
tion to  render  it  be  certified  on  paper ;  also  that  the 
willingness  of  people  to  accept,  in  return  for  actual 
services  rendered,  mere  promises  to  pay  in  future,  by 
whomsoever  issued,  is  quite  different  at  different  times 
—  in  times  of  confidence  and  prosperity  they  may  be 
readily  accepted,  in  times  of  disaster  and  peril  all 
men  prefer  payment  to  promise.  The  functions  of 
money  are  two :  to  serve  as  a  medium  of  exchange, 
and  to  serve  as  a  measure  of  value.  To  fulfil  the 
first  office  well,  money  should  be  a  commodity  at  all 
times  acceptable  to  all  men  in  return  for  services  ren- 
dered ;  to  perform  the  second  function  well,  money 
should  be  as  uniform  as  possible  in  quality,  and  vary 
in  quantity  according  to  the  shifting  demands  of  ex- 
change, and  not  otherwise ;  in  short,  vary  in  quantity 
just  as  a  good  metallic  currency  does  vary  under 


250  ELEMENTS  OF  POLITICAL  ECONOMY. 

natural  laws  alone.  But  credit-money  is  unfitted 
by  its  very  nature  to  do  well  these  two  things ;  first, 
because  it  never  has  been,  and  in  the  nature  of  things 
never  can  be,  acceptable  to  all  men  at  all  times  in 
exchange  for  services  even  within  the  country  itself, 
and  in  international  exchanges  it  is  not  acceptable 
at  all ;  and  second,  because,  as  has  been  already 
shown,  a  steady  measure  of  value  necessitates  a 
steady  value  of  the  money,  and  the  value  of  credit 
must  certainly  be  as  variable  as  the  character  of  the 
issuers  for  integrity  and  solvency.  Add  to  this,  that 
the  value  of  credit-money,  like  the  value  of  every- 
thing else,  depends  in  part  on  the  supply,  and  the 
supply  will  vary  with  the  varying  disposition  of  the 
people  to  accept  it,  and  thus  the  measure  of  value 
will  be  varied.  It  is  in  vain  to  talk,  as  Mr.  Moran 
does  in  this  connection,  of  the  self-interest  of  the 
issuers,  and  of  their  honor,  and  so  on;  self  interest 
should  keep  men  from  becoming  bankrupts,  yet  men 
do  become  bankrupt;  honor  forbids  indeed  the  es- 
caping from  a  debt,  yet  debts  are  escaped  from.  On 
principles  merely,  it  would  be  as  certain  beforehand 
as  any  such  truth  can  be,  that  credit-money,  from 
the  nature  of  credit,  could  not  properly  perform  the 
two  delicate  and  important  functions  of  money. 

But  we  are  not  left  to  principles  alone.  Experi- 
ence throws  a  flood  of  light  on  this  whole  subject. 
At  the  beginning  of  the  last  century,  under  the  aus- 
pices of  John  Law,  France  issued  a  paper  money 
guaranteed  by  the  State,  resting  back  for  its  value 
on  the  national  faith  and  on  the  whole  national 
property.  The  notes  were  made  receivable  in  taxes, 
were  redeemable  in  coin,  were  made  a  legal  tender, 


ON  MONEY.  251 

were  nursed  up  by  the  government  in  every  way; 
but  in  less  than  four  years,  owing  mainly  to  their 
over-issue,  to  which  credit-money,  unless  under  the 
most  stringent  regulations,  is  always  liable,  they  fell, 
as  compared  with  specie,  first  to  ninety,  then  to  sixty 
and  fifty,  and  shortly  after,  although  they  were  made 
fundable  in  annuities,  to  twenty,  and  then  to  four 
per  cent.,  and  then  their  value  vanished  entirely. 
The  notes  depreciated  at  first  because  the  people 
began  to  lose  faith  in  the  ability  of  the  royal  bank 
to  redeem  them  in  coin ;  and  the  subsequent  action 
of  the  government  confirmed  their  suspicions ;  and 
however  good  the  public  faith  may  have  been,  and 
it  was  sufficient  to  rescue  most  of  the  notes  by  fund- 
ing them  in  annuities,  it  was  a  poor  element  in  the 
people's  money,  because  the  functions  of  money  are 
such  as  to  be  incompatible  with  any  degree  of  dis- 
trust. It  is  well,  in  most  cases,  for  a  people  to  trust 
their  government ;  it  is  safe  for  them  usually  to  loan 
their  money  to  it  and  take  a  government  bond  as 
security  for  payment ;  but  money  is  very  different  in 
its  nature  from  government  stocks;  and  the  public 
faith,  which  is  an  ample  basis  for  the  latter,  is  no 
suitable  basis  at  all  for  the  former.  Again  at  the 
close  of  the  century  France  tested  the  merits  of 
paper  money  on  a  broad  scale.  As  the  great  revo- 
lution went  forward,  and  a  scarcity  of  money  was 
experienced,  the  government  issued,  under  the  name 
of  "  assignats,"  a  paper  money  entitling  the  bearer 
to  a  certain  value  of  the  property  of  the  royalist 
clergy  and  nobility,  who  had  mostly  left  the  country, 
and  which  the  government  had  confiscated  and  now 
intended  to  sell.     The  assignats  were  receivable  in 


252  ELEMENTS  OF  POLITICAL  ECONOMY. 

payment  for  these  landed  estates  at  any  public  sale 
of  the  same.  For  about  two  years  their  value  kept 
up  above  ninety  per  cent.,  and  then  began  to  droop. 
The  government,  in  alarm,  while  issuing  on  the  one 
hand  enormous  quantities  of  the  paper  to  meet  the 
vast  expenses  of  the  Revolution,  which  quantities 
were  swelled  by  skilful  counterfeiters  in  the  prisons 
and  elsewhere,  took  strong  measures  on  the  other 
to  prop  up  their  market-value :  the  use  of  coin  was 
prohibited;  a  maximum  price  in  assignats  for  every- 
thing was  established  by  law ;  heavy  penalties  and 
at  last  death  were  decreed  against  those  who  refused 
to  receive  them  at  par ;  but  it  was  all  in  vain.  Down 
they  went,  says  Carlyle,  "  with  an  alacrity  beyond 
parallel."  The  discount  increased  with  the  issues, 
but  in  a  greater  ratio ;  by  means  of  a  forced  loan, 
exacted  in  1793,  the  Convention  were  enabled  tp 
draw  in  eight  hundred  and  forty  millions  francs  of 
the  paper,  and  the  depreciation  was  stopped  for  a 
little  by  this  expedient;  but  in  the  next  year  the 
amount  was  as  great  as  ever,  and  the  discount 
greater.  In  1795  they  could  be  had  for  eighteen  per 
cent.,  and  in  the  beginning  of  1796  they  became 
utterly  worthless  as  money.  The  government  then 
offered  to  redeem  them  at  thirty  for  one  in  "  man- 
dats,"  which  entitled  the  bearer  to  take  immediate 
possession,  at  their  estimated  value,  of  any  of  the 
lands  pledged  by  the  assignats.  The  mandats  de- 
preciated instantly,  and  in  the  course  of  a  few 
months  were  all  called  in,  and  business,  which  had 
practically  ceased  under  the  paper  money,  began  to 
revive  again  at  the  sight  of  the  coin,  which,  of  course, 
had  been  out  of  the  circulation  for  years.     The  dis- 


ON  MONEY.  253 

tress  and  consternation  into  which  a  country  falls 
when  its  measure  of  value  is  disturbed  and  destroyed, 
as  it  was  by  the  issue  of  the  assignats,  is  past  all 
powers  of  description.  There  can  be  no  doubt  that 
the  depreciation  and  final  w^orthlessness  of  the  assig- 
nats caused  more  suffering  in  .the  French  Revolu- 
tion, a  hundredfold,  than  the  prisons  and  the  guillo- 
tine. It  may  be  said  that  the  government  ought  not 
to  have  issued  them  in  such  excess  — '  over  fifty  thou- 
sand millions  of  francs  were  put  out  in  all.  Perhaps 
it  ought  not.  But  there  never  has  been  a  govern- 
ment yet,  of  the  many  which  have  issued  irredeem- 
able paper,  which  had  the  wisdom  and  firmness  to 
resist  for  any  great  length  of  time  the  strong  temp- 
tation to  over-issue.  There  is  no  stopping  when 
once  the  issue  is  begun.  The  first  batch  of  such 
paper  usually  banishes  the  coin  from  the  currency. 
There  is  no  way  to  entice  it  back  except  to  call  in  and 
burn  up  the  paper.  Revolutionary  governments  are 
not  generally  in  position  to  be  able  to  do  this.  Ordi- 
nary national  expedients  are  denied  them.  They  can- 
not borrow.  Therefore  they  have  recourse  to  credit- 
money,  which  is  really  borrowing  without  interest, 
and  when  once  the  press  is  set  at  work  it  must  work 
on  with  livelier  speed,  because  just  in  the  ratio  of 
the  depreciation  is  a  greater  amount  required  to 
meet  the  ordinary  payments.  This  example  is  sig- 
nificant, because  it  shows  the  powerlessness  of  even 
the  strongest  and  most  unscrupulous  governments 
to  regulate  the  value  of  anything.  The  assignats 
were  depreciating  during  the  very  months  in  which 
Robespierre  and  the  Committee  of  Public  Safety  were 
wielding  the  power  of  life  and  death  in  France  with 


254  ELEMENTS  OF  POLITICAL  ECONOMY. 

terrific  energy.  They  did  their  utmost  to  stop  the 
sinking  of  the  revolutionary  paper.  But  value  knows 
its  own  laws,  and  follows  them,  in  spite  of  decrees  and 
penalties  This  example  also  exhibits  well  the  fun- 
damental vice  of  all  credit-money,  whose  value  arises 
just  as  all  other  value  arises,  and  is  amenable  to  the 
same  law  of  supply  and  demand  as  other  values, 
and  the  vice  of  which  is  that  there  is  no  natural 
limitation  of  its  supply.  There  is  relatively  no  ob- 
stacle to  its  indefinite  increase ;  and  therefore  the 
value  dependent  on  such  conditions  of  supply  has 
no  sufficient  stability ;  and  therefore  credit-money  is 
necessarily,  and  by  demonstration,  inferior  to  gold 
and  silver  money  in  the  cardinal  point  of  a  steady 
value. 

The  financial  experience  of  the  United  States  is 
so  varied  and  so  instructive  that  we  shall  devote  the 
next  chapter  to  a  consideration  of  its  history ;  but  it 
is  here  in  order  to  call  attention  to  the  fact  that  the 
bills  of  credit  emitted  by  the  individual  colonies 
before  the  Revolution,  and  the  continental  money 
issued  by  the  old  Congress  had  a  course  and  issue 
almost  precisely  similar  to  that  of  the  assignats. 
The  continental  bills  were  at  first  willingly  received 
at  par.  As  their  volume  increased  their  value  dimin- 
ished, as  was  shown,  as  usual,  by  a  universal  rise  of 
prices.  The  laws  of  the  States  continued  to  make 
these  bills  a  legal  tender  when  they  had  fallen  to  a 
tenth,  a  twentieth,  and  even  a  fortieth  of  their  nom- 
inal value,  thus  sanctioning  virtual  frauds  in  private 
business,  and  making  the  burden  of  the  money  fall 
heaviest  on  the  ignorant  and  helpless.  At  length, 
after  $200,000,000  had  been  issued,  from  which  the 


,      ON  MONEY.  2.55 

government  had  realized  perhaps  about  $70,000,000 
of  specie  value,  $88,000,000  of  the  bills  were  received 
back  by  the  government  and  replaced  at  the  rate  of 
forty  for  one  in  bills  of  the  "  ne^  tenor  "  which  bore 
interest  at  six  per  cent. ;  $40,000,000  were  in  the  na- 
tional treasury,  having  been  received  in  the  form  of 
taxes,  but  could  not  be  paid  out  again  because  the 
money  was  now  universally  rejected  ;  $70,000,000, 
or  more,  were  still  outstanding,  a  part  of  it  in  the 
State  treasuries,  and  a  part  in  the  hands  of  individ- 
uals. These  were  never  redeemed  in  any  sense. 
The  bills  of  the  new  tenor  also  depreciated  greatly, 
notwithstanding  they  bore  interest ;  so  that  the  whole 
loss  to  the  people  from  the  continental  money  was 
just  about  $70,000,000  specie,  which  may  be  con- 
sidered in  the  light  of  a  forced  loan  to  government, 
and  as  the  government  used  it  to  further  the  inter- 
ests of  the  people,  it  would  not  seem  so  bad,  except 
under  the  view  that,  in  running  this  career  of  depre- 
ciation and  repudiation,  many  times  that  amount  of 
damage  was  done  to  individuals,  since  the  same  de- 
preciated dollar  so  long  as  it  was  legal  tender  paid 
debts  over  and  over  again.  It  would  have  caused 
less  loss  and  disturbance  of  contracts  if  Congress 
had  just  taken  by  force  $70,000,000  of  specie  value 
from  the  pockets  of  the  people.  This  example  shows 
also  in  a  clear  light  how  unfit  for  the  uses  of  cur- 
rency is  a  national  inconvertible  paper. 

The  United  States  legal-tender  notes,  which  be- 
gan to  be  issued  April  1st,  1862,  and  of  which  over 
$650,000,000  are  now  in  circulation,  have  been  more 
or  less  depreciated  from  the  first,  and  at  times  very 
much  depreciated;  and  this,  not  because  there  has 


256  ELEMENTS  OF  POLITICAL  ECONOMY. 

been  doubt  about  their  ultimate  redemption,  not  be- 
cause of  a  lack  of  confidence  in  the  stabilitj^  of  the 
government,  for  thousands  of  millions  have  been 
freely  loaned  by  the  people  to  the  government  on 
the  public  faith  in  the  interval,  but  partly  on  account 
of  their  excessive  quantity,  and  partly  on  account  of 
the  nature  of  credit-money  unfitting  it  to  maintain  a 
high  and  steady  value.  It  has  been  sometimes  sup- 
posed that  when  two  kinds  of  money  are  both  made 
a  legal  tender,  they  will  both  circulate  indifferently 
in  the  currency,  and  that  their  value  will  be  equal. 
It  is  an  utter  mistake.  Gold  has  been  legal  tender 
in  this  country  all  the  while,  and  yet  has  borne  a 
premium  over  the  other  legal-tender  money  of  nearly 
one  hundred  per  cent,  on  the  average  of  the  past 
three  years.  It  may  be  questioned  whether  the 
making  these  notes  a  legal  tender  has  tended  to 
appreciate  their  value  at  all ;  so  far  as  the  demand 
for  them  was  thereby  increased  it  had  such  a  ten- 
dency, but  so  far  as  the  making  them  legal  tender 
indicated  the  conviction  of  the  government  that  they 
were  not  in  themselves  equal  to  gold  in  value,  the 
tendency  was  the  reverse.  The  faith  of  the  people 
in  their  money  is  very  properly  more  sensitive  and 
more  easily  shaken  than  their  faith  in  anything  else ; 
and  this  is  one  of  several  weighty  reasons  why  the 
element  of  credit  should  not  enter  into  the  money 
at  all.  Credit  is  good  in  its  place,  but  in  the  peo- 
ple's current  money  it  is  out  of  place.  The  fact 
that  in  the  Eastern  and  Middle  States  the  national 
legal  tenders  have  had  no  more  acceptance  in  the 
circulation  than  the  bills  of  their  State  banks,  which 
have  been  irredeemable  since  the  beginning  of  1862, 


ON  MONEY.  257 

and  not  like  the  others  fundable  in  a  gold-bearing 
government  bond,  is  also  an  indication  that  the  fact 
of  their  being  a  legal  tender  has  not  substantially 
enhanced  their  value. 

Our  proposition,  however,  if  correct,  condemns 
the  money  of  these  State  banks  also,  and,  in  a  gen- 
eral way,  all  the  paper  money  which  has  had  cur- 
rency in  this  country  from  the  beginning.  This 
paper,  although  nominally  redeemable  in  coin,  haa 
never  as  a  whole  been  actually  so  redeemable.  Some 
of  it  has  been  better  than  the  rest,  but  none  of  it  has 
deserved  the  praise  of  being  a  satisfactory  and  suffi- 
cient money.  (1.)  It  has  been  liable  to  great  and 
sudden  contractions  and  expansions  of  volume.  For 
example,  in  1857  the  bank  circulation  of  the  country 
was  $214,778,822,  and  in  1858  $155,208,344,  a  con- 
traction of  $59,570,474  in  one  year.  In  1862  the 
paper  money  of  the  banks  was  $183,762,079,  and  in 
1863  $238,677,218,  an  expansion  of  $54,885,139  in 
one  year.  (2.)  The  ratio  of  paper  to  the  specie  re- 
served for  redeeming  it  has  been  a  high  ratio. 
According  to  the  Finance  Report  of  1863,  from  which 
the  figures  in  this  paragraph  are  all  taken,  that  ratio 
for  the  whole  country  taken  together  on  the  first  of 
January,  1863,  was  4  to  1 ;  while  in  particular  States 
the  ratio  was  remarkable ;  in  Rhode  Island,  for  in- 
stance, more  than  12  to  1,  and  in  Vermont  more 
than  28  to  1.  It  is  evident  that  such  paper  can  only 
be  called  redeemable  by  stretch  of  courtesy.  (3.) 
Consequently  nothing  could  prevent  a  distrust  of 
such  paper,  so  soon  as  there  began  to  be  commercial 
stress  and  pressure  ;  especially  whenever  the  exigen- 
cies of  commerce  withdrew  gold  for  foreign  trade 

17 


258  ELEMENTS  OF  POLITICAL  ECONO^IY. 

from  reserves  already  so  small.  Four  or  five  times 
have  panics  resulting  from  these  natural  causes 
attacked  the  paper  currency  of  the  country,  and 
compelled  all  the  banks  to  confess,  what  everybody 
knew  before,  that  they  were  unable  to  redeem  their 
promises.  These  repeated  suspensions  of  specie  pay- 
ments proclaim  the  whole  system  to  be  unsound. 
They  show  that  credit  is  no  proper  basis  on  which 
to  build  a  currency.  The  banks,  each  under  its  own 
board  of  control,  and  under  various  and  often  con- 
flicting State  laws,  have  not  acted  in  unison,  have 
contracted  and  expanded  their  circulation  according 
to  a  view  of  their  own  interest,  have  contributed 
powerfully  in  times  of  quiet  by  a  system  of  generous 
loaning,  on  which  their  profits  depended,  to  induce  a 
spirit  of  speculation  and  a  willingness  to  contract 
debts,  and  have  experienced  when  the  reaction  came 
how  much  easier  it  is  to  loan  paper  promises  than 
to  fulfil  them.  Their  inability  to  continue  in  troub- 
lous times  the  free  loans  which  helped  to  bring  them 
on,  and  their  repeated  failures  to  make  good  the  obli- 
gation to  redeem  their  own  notes,  have  caused  in  the 
last  fifty  years  innumerable  failures  of  business  men, 
and  incalculable  losses  of  property.  There  can  be 
no  hesitation  in  affirming  that  the  expense  of  main- 
taining a  gold  and  silver  currency  for  all  the  wants 
of  the  whole  country  might  have  been  met  many 
times  over  from  the  losses  resulting  from  the  bank- 
paper  system.  The  instability  of  the  system  has 
tended  towards  a  reckless  way  of  doing  business 
among  us,  which  has  been  a  just  reproach  to  us  in 
foreign  countries.  Besides  these  considerations, 
which  go  to  show   the  inadequacy  of  bank-paper 


ON  MONET.  259 

money  to  answer  the  purposes  of  a  good  currency, 
the  system  is  based  on  essential  injustice.  It  allows 
certain  corporations  to  borrow  money  of  the  people 
without  paying  interest,  while  other  corporations  and 
individuals,  just  as  solvent,  must  pay  interest.  Bank- 
bills  are  nothing  but  promis-sory-notes  which  the 
people  take  of  the  issuers  without  interest,  giving 
them  as  security  for  their  return  notes  which  are  on 
interest.  The  greater  currency  of  the  bank-notes  is 
supposed  to  be  an  equivalent  for  the  difference  of 
interest,  and  by  this  difference  of  interest  the  bank 
lives,  but  it  has  been  found  in  the  long  run  that  the 
paper  credit  of  banks  as  a  whole,  and  as  they  have 
been  administered,  is  scarcely  better  than  the  credit- 
paper  of  other  corporations  and  individuals.  Their 
money  has  never  been  actually  arid  instantly  redeem- 
able in  coin ;  and  it  is  fortunate  that  the  people  have 
come  to  the  practical  conclusion  no  longer  to  allow 
joint-stock  companies  under  State  regulations  to 
manufacture  and  issue  their  money  for  them. 

But  will  the  National-banking  system,  just  now 
coming  into  full  operation,  furnish  the  people  with  a 
good  currency  ?  To  this  question  I  answer,  that  the 
National-banking  system  is  every  way  preferable  to 
the  old  State-bank  system.  The  banks  under  it  are 
all  amenable  to  a  central  authority  and  to  common 
regulations.  Their  circulation  is  all  secured  by  an 
actual  deposit  with  the  national  Comptroller  of  the 
Currency,  of  gold-bearing  government  stocks  to  an 
amount  at  least  one  tenth  greater  than  such  circula- 
tion, so  that  the  redemption  of  the  circulation  is 
perfectly  provided  for,  in  case  the  bank  itself  refuses 
to  redeem.     The  bills  of  all  the  banks  are  current 


260  ELEMENTS  OF  POLITICAL  ECONOMY. 

everywhere  within  the  country,  and  provision  is  made 
for  the  immediate  redemption  of  them  in  each  of  the 
great  central  cities,  as  well  as  at  the  counters  of  the 
banks  which  issye  them.  The  bills  are  so  expensively 
engraved  by  the  national  government  that  the  coun- 
terfeiting them  will  be  more  difficult  than  it  has  been 
to  counterfeit  the  State-bank  bills.  If  any  form  of 
credit-money  can  be  regarded  with  favor,  certainly 
this  money  can  be  so  regarded,  for  the  capital  stock 
of  these  banks  is  all  invested  in  the  national  debt, 
which  is  as  secure  a  form  of  credit  as  any  credit  can 
be,  and  the  bills  are  based  also  on  the  good  faith  of 
the  individual  banks  which  enlist  the  self-interest  and 
the  sense  of  honor  of  the  stockholders  and  directors. 
As  a  form  of  credit  nothing  can  be  alleged  against  it ; 
it  has  all  the  securities  and  guaranties  that  could  be 
desired ;  when  specie  payments  are  resumed,  as  it  is 
expected  they  will  be  in  a  year  or  two,  no  doubt  the 
bills  will  be  practically  convertible  into  gold  and 
silver,  and  so  will  be,  in  accordance  with  the  words 
of  the  proposition,  a  tolerable  money.  Nevertheless, 
they  will  not  be  the  most  economical  nor  the  best 
attainable  money.  If  we  could  be  assured  that  the 
$300,000,000  of  this  money  already  authorized  would 
not  be  increased,  then  a  good  degree  of  confidence 
in  it  would  be  natural  and  reasonable ;  then  the  lar- 
ger half  of  our  whole  currency  would  be  gold  and 
silver ;  the  paper,  like  the  bills  of  the  Bank  of  Eng- 
land, would  undoubtedly  be  at  par  all  the  while,  and 
we  should  gain  something  by  the  superior  conven- 
ience of  the  paper,  and  not  lose  much  by  its  inferior 
steadiness.  But  the  mischief  of  it  is,  this  money 
cannot  regulate  its  own  quantity ;  it  is  not  guarded, 


ON  MONEY.  261 

as  gold  and  silver  are,  by  a  natural  limitation  of  sup- 
ply; a  simple  vote  of  Congress  would  be  sufficient 
to  double  or  treble  its  quantity,  and  thus  derange  its 
value,  and  postpone  indefinitely  its  par  with  gold. 
After  all  that  can  be  said  in  favor  of  it,  it  is  credit- 
money  still,  and  exposed  to  the  dangers  inseparable 
from  credit-money,  namely,  the  distrust  of  the  people, 
the  undue  enlargement  and  sudden  diminution  of 
its  volume,  a  consequent  unsteadiness  of  value,  and 
inconvertibility.  I  have  but  little  doubt  that  Con- 
gress will  be  urged  to  enlarge' the  sum  already  au- 
thorized, and  hardly  less  that  they  will  lack  the  wis- 
dom and  firmness  to  refuse,  and  if  we  are  to  have  a 
national  paper  currency  expanding  and  contracting 
under  the  successive  tinkerings  of  Congress,  we  shall 
yet  experience  more  of  those  evils  of  credit-money, 
from  which  we  have  suffered  in  the  past  so  exten- 
sively in  property  and  reputation,  and  which  nothing 
but  our  exuberant  and  exulting  strength  has  enabled 
us  to  outlive  and  to  forget. 

The  Bank  of  England  stands  in  most  men's  minds 
as  a  synonym  of  security,  and  its  bills  as  the  perfec- 
tion of  paper  money ;  but,  like  all  other  human  insti- 
tutions, it  has  had  its  ups  and  downs,  and  there  have 
been  repeated  and  persistent  "runs"  upon  it  for 
payment,  and  its  paper  has  been  at  times  discred- 
ited as  much  as  twenty-five  per  cent.  A  child  of 
the  English  Revolution,  it  was  incorporated  by  Par- 
liament in  1694,  on  condition  that  its  stockhold- 
ers should  loan  to  government,  then  pressed  for 
funds,  the  sum  of  X  1,200,000,  on  which  they  were 
promised  to  receive  eight  per  cent,  as  interest,  and 
£4000  a  year   for   management.     It  was  supposed 


U/ 


262  ELEMENTS  OF  POLITICAL  ECONOMY. 

that  subscriptions  to  the  loan  would  come  in  slowly; 
but,  to  the  surprise  of  everybody,  X  300,000  were 
subscribed  the  first  day ;  .£300,000  more  in  the  next 
two  days;  and  in  ten  days  it  was  announced  that  the 
specified  sum  was  raised.  Thus  the  moneyed  men 
rallied  to  the  support  of  government ;  and  the  gov- 
ernment was  strengthened  in  one  sense  by  its  own 
very  indebtedness ;  for  it  was  felt  that  if  James  II. 
should  regain  the  throne,  no  pound  of  the  loan  would 
ever  be  paid.  "  So  closely,"  says  Macaulay,  "  was 
the  interest  of  the  bank  bound  up  with  the  interest 
of  the  government,  that  the  greater  the  public  danger 
the  more  ready  was  the  bank  to  come  to  the  rescue." 
Thus  the  whole  capital  stock  of  the  bank,  just  like 
the  capital  of  our  new  national  banks,  was  invested 
in  the  national  debt ;  the  interest  was  to  be  paid 
from  the  proceeds  of  the  taxes,  and  the  original  loan, 
if  ever  repaid  at  all,  was  also  to  come  from  the  same 
source.  At  different  times  down  to  1833,  the  bank 
advanced  to  the  government  various  sums  on  various 
conditions,  until,  when  the  charter  was  renewed  for 
the  ninth  time  in  that  year,  the  public  owed  to  the 
bank  <£  11,015,000,  and  the  debt  has  remained  at  that 
figure  ever  since.  Instead  of  eight  per  cent,  which 
was  paid  on  the  original  loan,  the  rate  has  been 
gradually  lessened,  and  the  bank  now  receives  but 
three  per  cent,  on  the  whole  debt.  The  entire  capital 
of  the  bank  is  at  the  present  time  about  £14,500,000, 
of  which,  as  we  have  just  seen,  a  trifle  over  <£  11,000,- 
000  is  in  the  permanent  public  debt  of  England.  In 
1844,  when  the  charter  was  renewed  for  the  tenth 
time.  Sir  Robert  Peel  caused  a  law  to  pass  Parlia- 
ment the  object  of  which  was  to  lessen  the  fluctua- 


ON  MONEY.  263 

tions  in  the  quantity  and  value  of  the  money.  To 
make  the  notes  in  circulation  vary  in  amount  and 
value,  under  the  exigencies  of  trade,  just  as  a  metalic 
money  would  do,  was  the  praiseworthy  purpose  of 
the  prime  minister  in  the  new  constitution  he  gave 
to  the  bank  in  1844.  The  bank  is  thereby  divided 
into  two  separate  departments,  the  issue  depart- 
ment and  the  loaning  department.  The  latter  con- 
ducts its  business  like  any  other  institution  of  loan, 
raising  and  lowering  its  rate  of  interest  according 
to  the  state  of  the  market,  but  usually  keeping  its 
rate  a  trifle  higher  than  the  market-rate,  so  as  to 
be  able  to  act  as  a  support  to  private  bankers  and 
others  in  case  of  pressure.  The  issue  department  is 
subjected  to  a  well-considered  scheme  of  restraint. 
It  is  allowed  to  issue  .£11,000,000  in  notes  on  the 
basis  of  the  permanent  debt  which  the  government 
owes  the  bank,  and  X3,000,000  on  the  other  public 
securities  which  are  a  part  of  the  capital  stock ;  but 
beyond  this  £14,000,000,  secured  by  its  permanent 
capital,  it  must  have  for  every  pound  in  notes  issued, 
pound  for  pound  of  gold  and  silver  in  its  coffers. 
The  average  circulation  of  notes  is  about  .£28,000,- 
000-,  one  half  based  on  specie  actually  in  reserve, 
and  the  other  on  the  public  debt.  The  bills  of  the 
bank  are  legal  tender  everywhere  except  at  the  bank 
itself,  where  coin  must  be  paid  on  every  bill  presented 
for  that  purpose;  and  the  bank  is  also  obliged  to 
buy,  and  pay  for  in  notes,  all  gold  bullion  and  for- 
eign coins  offered  to  it,  at  the  rate  of  £3  17s.  9d.  per 
ounce  standard  fine ;  so  that,  if  the  notes  depreciate 
as  compared  with  coin,  they  can  at  once  be  changed 
into  coin,  or  if  coin  depreciates  as  compared  with 


264  ELEMENTS  OF  POLITICAL  ECONOMY. 

notes,  it  can  be  changed  into  notes.  The  bills  of*  the 
Bank  of  England,  consequently,  are  a  better  money 
than  the  bills  of  our  national  banks,  which  are  only 
required  to  keep  on  hand  in  lawful  money  of  the 
United  States  twenty-five  per  cent,  of  their  liabilities 
in  notes  and  deposits,  because  they  are  more  cer- 
tain to  be  instantly  convertible  into  coin  on  demand, 
the  provision  for  instant  redemption  is  more  liberal, 
and  the  constant  presence  in  that  currency  of  a  larger 
body  of  coin  than  of  paper  makes  everything  firmer 
and  redemption  easier.  A  stoppage  of  specie  pay- 
ments is  possible,  but  not  probable,  at  the  Bank  of 
England,  under  the  present  constitution  of  the  bank. 
It  did  however  suspend  in  1797,  and  did  not  resume 
till  1821,  during 'which  interval  the  notes,  cautiously 
issued  at  first,  continued  at  par  for  nearly  three  years, 
and  then  declined  gradually  down  to  twenty-five  and 
even  to  forty  per  cent,  discount,  from  which  point 
they  gradually  rose  as  the  prospect  of  resumption 
increased,  until  they  came  to  par,  and  have  remained 
so.  The  earlier  period  of  the  suspension  proves  this 
important  point,  that  when  a  government  possesses 
the  monopoly  of  issuing  paper  money,  and  carefully 
limits  the  quantity  issued,  and  both  receives  it  and 
pays  it  out  as  legal  tender,  it  may  keep  an  inconver- 
tible paper  at  par,  and  even,  by  sufficiently  limiting 
its  quantity,  carry  it  above  par.  But  this  truth  does 
not  make  an  inconvertible  paper  a  good  money,  be- 
cause it  does  not  make  it  a  self-regulating  money, 
and  because  no  government  is  wise  enough,  or  ever 
will  be,  to  issue  just  enough  and  no  more  of  such 
money.  It  is  certain  too  that  the  present  convertible 
money  of  Great  Britain  does  not  in  fact  vary  so  per- 


ON  MONEY.  265 

fectly  in  volume  and  value  as  a  metallic  money 
would  do  under  the  impulses  of  trade ;  and  twice 
since  1844  the  government  has  allowed  the  bank  to 
violate  its  charter,  and  to  issue  more  than  X14,000,- 
000  on  securities  temporarily;  once  in  1847  and 
again  in  1857.  The  opportune. loan  of  a  million  to 
our  generous  countryman,  George  Peabody,made  by 
consent  of  the  government  in  violation  of  the  charter 
in  the  latter  year,  saved  him  from  otherwise  inevita- 
ble failure.  It  shows  that  there  is  something  facti- 
tious and  unnatural  about  paper  money,  when  so 
rigid  a  system  of  restraint  is  considered  needful  to 
prevent  disastrous  fluctuations  in  volume  and  value. 
In  my  judgment,  the  most  economical,  and,  taking 
all  things  into  consideration,  every  way  the  best 
money,  is  the  gold  and  silver  which  God  has  evi- 
dently designed  for  that  purpose.  This  position  does 
not  exclude  the  freest  use  of  those  convenient  econ- 
omizing commercial  expedients,  such  as  bills  of 
exchange,  drafts,  checks,  money-orders  through  the 
post-office,  and  so  on,  which  are  sufficient  to  prevent 
for  the  most  part  all  burdensome  transfers  of  coin. 
The  public  has  not  yet  reflected  sufficiently  on  the 
peculiar  functions  of  money,  nor  discriminated  as  it 
should  the  proper  sphere  of  credit  from  the  proper 
sphere  of  currency.  Let  the  currency  stand  securely 
in  its  own  right  as  value-money,  and  then  the  va- 
rious forms  of  paper  credit  will  safely  come  in  to 
remove  all  the  inconveniences  and  secure  all  the 
advantages  of  a  perfectly  sound,  and  everywhere 
acceptable,  and  a  naturally  self-regulating  money. 
The  great  objection  to  this  has  been  the  expense  of 
maintaining  such  a  currency.     If  we  may  trust  the 


266  ELEMENTS  OF  POLITICAL  ECONOMY. 

competent  director  of  our  national  mint,  the  expense 
would  be  ^0  of  the  value  of  the  currency  per  an- 
num; that  is  to  say,  if  the  currency  of  the  country 
consisted  of  $720,000,000,  which  would  certainly  be 
enough  for  the  present,  it  would  cost  $300,000  per 
annum  to  keep  it  good.  Considering  the  inevitable 
losses  which  always  accompany  the  derangements 
of  the  standard  of  value,  and  the  expenses  of  en- 
graving, and  of  detecting,  arraigning,  and  punishing 
counterfeiters  of  the  paper,  and  the  losses  from  suc- 
cessful counterfeits,  and  other  similar  items,  it  is 
believed  that  $720,000,000  of  paper  money,  inferior 
as  it  is  for  the  purpose  designed,  would  cost  at  least 
as  much  to  keep  it  good.  The  best  money  will  cer- 
tainly be  found  to  be  the  most  economical. 

6.  Government  ought  to  leave  freely  to  the  parties 
concerned  the  rate  of  interest  to  he  paid  on  money 
loaned. 

The  law  of  Moses  forbade  to  the  Israelites  the 
taking  from  one  another  any  interest  on  money 
loaned,  but  at  the  same  time  it  allowed  them  to 
take  such  interest  freely  of  strangers;  the  permis- 
sion in  the  one  case  going  to  show  that  there  is 
nothing  in  the  taking  of  interest  in  itself  unjust  or 
sinful,  and  the  prohibition  in  the  other  being  readily 
explainable  from  the  general  purpose  of  the  munici- 
pal regulations  of  Moses,  which  was  to  found  an  agri- 
cultural and  not  a  trading  commonwealth,  in  which 
every  family  was  to  possess  land  that  could  not  be 
permanently  alienated  or  sold,  in  which  it  was  a 
great  object  to  maintain  the  personal  independence 
and  equality  of  these  families,  in  which  the  law  for 
the  recovery  of  debts  was  very  summary  and  effect- 


ON  MONEY.  267 

ive,  lessening  the  risk  of  losing  the  principal,  and 
which  was  to  be  and  was  sedulously  separated  in 
its  usages  from  the  surrounding  nations.  It  has 
been  well  understood  for  a  long  time  that  the  mu- 
nicipal code  of  Moses  was  local  and  peculiar,  not 
necessarily  applicable  at  all  to  the  circumstances  of 
other  States,  and  in  no  sense  binding  on  the  con- 
science of  legislators ;  and  yet  there  doubtless  sprung 
from  the  prohibition  referred  to  a  prejudice  against 
interest,  ^nd  this  prejudice  was  perhaps  deepened 
in  the  Middle  Ages  and  onwards  by  the  conduct  of 
the  Jews  themselves,  who,  in  addition  to  their  sin 
of  persistently  growing  rich  .in  spite  of  the  endless 
disabilities  laid  on  them  by  the  people  of  Europe, 
always  demanded,  in  accordance  with  the  permis- 
sion of  their  great  lawgiver,  a  per  cent,  of  interest 
from  those  strangers  to  whom  they  became  money- 
lenders. The  Jews  were  everywhere  hated,  and  con- 
sequently the  usury  which  they  practised  was  hated 
also.  The  fundamental  absurdity  of  forbidding  in 
trading  communities  the  taking  of  interest  on  sums 
loaned  to  a  borrower  which  he  was  at  liberty  to  use 
for  his  own  profit,  deterred  the  nations  from  going 
to  the  length  of  prohibition,  unless  it  might  be  in 
the  case  of  the  hated  Jews.  There  is  a  clause  of 
Magna  Charta,  interesting  as  showing  how  early  the 
children  of  Abraham  became  the  money-lenders  of 
Europe,  to  the  effect  that,  during  the  minority  of 
any  baron,  while  his  lands  are  in  wardship,  no  debt 
which  he  owes  to  the  Jews  shall  bear  any  interest. 
The  prejudice  against  interest  embodied  itself  in 
what  are  called  usury  laws.  These,  without  pro- 
hibiting the  taking  of  interest,  prescribe  a  maximum 


268      ELEMENTS  OF  POLITICAL  ECONOMY. 

rate  per  cent.,  which  lenders  may  receive,  and  an- 
nounce a  penalty  in  case  they  take  more.  The  pen- 
alty is  sometimes  the  forfeiture  of  the  entire  interest, 
and  sometimes  of  the  entire  debt. 

Usury  laws,  however,  have  not  sprung  wholly  from 
the  old  prejudice  that  to  take  interest  was  a  great 
moral  wrong,  and  the  greater  the  more  was  taken ; 
they  sprung  also  from  a  false  notion  which  used  to 
be  pretty  general,  but  which  is  now  at  length  thor- 
oughly exploded,  that  governments  were  competent 
to  determine  the  value  of  their  own  money;  and 
there  has  been,  and  is  still,  a  curious  and  harmful 
confusion  in  respect  to  this  term,  the  value  of  money. 
In  the  only  proper  sense  of  the  term,  the  value  of 
money  means  its  power  of  purchasing  services  in 
general,  and  the  value  of  money  is  high  when  a 
given  sum  of  it  will  purchase  much  of  general  ser- 
vices, and  low  in  the  contrary  case ;  but,  unfortu- 
nately, the  terms  "  high  and  low  value  of  money " 
have  also  been  used  to  denote  a  high  or  low  rate 
of  interest  on  money  loaned,  which  is  a  very  differ- 
ent signification,  and  a  high  or  low  rate  of  interest 
depend  on  a  very  distinct  set  of  causes  from  those 
which  determine  a  high  or  low  value  of  money ; 
nevertheless,  so  long  as  governments  supposed  that 
they  could  regulate  the  latter,  it  is  perfectly  natural 
that  they  should  also  suppose  that  they  could  regu- 
late the  former ;  and  although  all  intelligent  govern- 
ments have  given  over  the  idea  of  being  able  to 
regulate  the  value  of  money,  many  of  them  still 
adhere  to  the  idea,  equally  false  as  the  other,  that 
they  are  able  to  regulate  the  loanable  value,  or  the 
rate  of  interest,  at  least  to  prevent  any  more  than 


ON  MONEY.  269 

their  prescribed  maximum  rate  from  being  taken. 
Even  the  national  banking  law  of  the  United 
States,  lately  passed  at  the  instance  of  the  excel- 
lent Committee  of  the  Ways  and  Means,  adopts  the 
usury  laws  of  the  several  States,  and  allows  the 
banks  to  take  the  rates  of  interest  current  and  legal 
in  those  States,  although  this  rate  varies  between 
the  extremes  of  5  and  10  per  cent.,  and  denounces 
the  penalty  of  forfeiture  of  the  whole  debt  in  case 
they  take  more.  Are  such  laws  needful?  Are  they 
beneficial?  Are  they  in  accordance  with  sound 
principles,  or  do  they  violate  them  ?  Has  a  govern- 
ment any  right,  after  it  has  stamped  or  engraved  its 
money,  and  parted  with  it  to  the  people  in  return 
for  value  received,  to  say  that  they  into  whose  hands 
it  has  rightfully  come  shall  only  have  so  much  un- 
der any  circumstances  as  a  reward  for  foregoing  the 
use  of  it  themselves  that  somebody  else  may  have 
the  use  of  it  ? 

Let  us  see  precisely  the  nature  of  the  transaction 
when  one  man  loans  money  to  another.  It  is  a  clear 
case  of  value.  The  lender  does  a  service  to  the 
borrower,  and  for  this  service  justly  demands  a  com- 
pensation. The  service  is  this  :  The  lender  might 
himself  use  the  money  to  gratify  his  own  desires.  It 
is  his  money ;  he  may  use  it,  as  he  pleases,  for  his 
own  gratification.  Or,  he  may  himself  employ  it 
productively,  and,  at  the  end  of  the  period,  receive 
back  his  principal  with  the  customary  rate  of  profit. 
If  he  surrenders  this  advantage  to  the  borrower,  if 
he  passes  over  to  him  the  right  to  use  this  money, 
say,  for  a  year,  he  practises  what  we  call  in  Political 
Economy  abstinence.     For  this  abstinence  he  has  a 


270      ELEMENTS  OF  POLITICAL  ECONOMY. 

right  to  claim  a  reward,  precisely  as  the  man  has  a 
right  to  claim  a  reward  who  foregoes  working  for 
himself  in  order  to  work  for  me.  This  reward  of 
abstinence  is  interest.  The  money-lender  foregoes 
an  advantage.  He  performs  a  service  for  the  bor- 
rower ;  and,  therefore,  the  right  to  interest  stands  on 
just  as  unassailable  ground  as  the  right  to  wages. 

The  money-lender  comes  to  society  exactly  as  we 
all  come,  having  a  valuable  service  to  offer  in  ex- 
change ;  and  he  is  anxious,  as  we  all  are,  to  make 
the  best  terms  he  can.  So  far  as  I  can  see,  his  case 
does  not  differ,  in  any  respect  whatever,  from  the 
case  of  all  the  rest  of  us.  It  is  a  case  of  pure  ex- 
change. Mr.  Retired  Merchant  has  money  to  loan, 
and  Mr.  Active  Manufacturer  would  like  to  borrow 
it.  The  first  is  too  old  to  work,  but  he  can  still  prac- 
tise abstinence  and  get  gain.  The  second  knows 
how  to  turn  a  nimble  penny  and  make  two  of  it,  and 
is  willing  to  give  a  part  of  the  second  penny  to  the 
man  who  will  lend  him  the  first.  These  two  men, 
then,  are  in  position  to  render  each  other  a  mutual 
service.  They  want  to  exchange.  Why  shouldn't 
they  strike  their  own  bargain?  Every  other  two 
men  when  they  exchange  services  strike  their  own 
bargain,  and  nobody  thinks  of  prescribing  to  them 
the  terms.  It  would  be  considered  a  vast  imperti- 
nence if  government  should  prescribe  the  terms  of 
exchange  in  other  cases,  —  why  is  it  less  impertinent 
in  this  case  ?  The  lender  has  as  good  a  right  to 
make  the  most  of  his  money  as  the  farmer  to  make 
the  most  of  his  wheat.  But  the  farmer  is  allowed 
to  exchange  on  the  best  terms  he  can  make :  can 
any  good  reason  be  given  why  the  lender  should  not 


ON  MONEY.  271 

be  allowed  to  exchange  with  the  borrower  on  the 
best  terms  he  can  make  ? 

I  am  perfectly  aware  that  the  national  banking 
law  does  not  prescribe  terms  to  private  lenders  and 
borrowers  ;  but  the  States  themselves  do  this,  and  it 
is  with  the  principle  alone  that  I  am  now  con- 
cerned. The  principle  is  everywhere  the  same,  and 
is  nowhere  soundly  based.  All  values  are  variable. 
The  loanable  value  of  money  varies  under  exactly 
the  same  conditions  as  every  other  value  varies.  It 
is  determined,  as  every  other  value  is,  by  the  actual 
exchanges  between  lenders  and  borrowers;  or, rather, 
by  what  would  be  the  actual  exchanges,*  if  they  were 
left  free.  Now  for  any  government  to  compel  a  bor- 
rower to  pay  six  per  cent,  when  he  might  otherwise 
borrow  for  five,  or  a  lender  to  take  only  seven  per 
cent,  when  his  money  is  worth  eight,  is  a  direct  vio- 
lation of  the  rights  of  property.  It  is  a  forcible  and 
pernicious  interference  with  the  freedom  of  contracts. 
It  is  based  on  the  false  premise  that  the  loanable 
value  of  money  is  uniform,  and  that  government  is 
competent  to  determine  what  it  is.  No  value  is 
uniform.  And  no  government  is  less  to  be  trusted 
with  such  a  power  than  one  which  thinks  itsplf 
competent  to  exercise  it. 

On  principle,  then,  these  are  the  two  considera- 
tions which  condemn  usury  laws.  First,  it  is  invidi- 
ous to  allow  other  men,  in  every  department  of  busi- 
ness, to  exchange  their  services  on  the  best  terms 
they  can  make,  without  any  interference  or  control, 
and  then,  without  rendering  any  solid  reason  for  it, 
to  deny  this  privilege  to  money-lenders,  who  offer 
just  as  honorable  and  useful  services  to  society  as 


272  ELEMENTS  OF  POLITICAL  ECONOMY. 

any  other  class  of  men.  Second,  it  is  a  false  notion 
altogether,  that  the  loanable  value  of  money  is,  or 
can  be  made,  uniform ;  and,  therefore,  a  rate  per 
cent,  fixed  by  the  government  constantly  infringes 
on  the  rights  of  property,  —  on  the  rights  of  the  bor- 
rowers, if  the  rate  is  too  high,  on  the  rights  of  the 
lender,  if  the  rate  is  too  low.  But  there  are  two 
other  considerations,  each,  if  possible,  better  than 
these,  which  condemn  all  legal  rates  of  interest. 
The  first  is,  that  such  laws  are  rarely  obeyed,  and 
can  scarcely  be  enforced.  It  is  notorious  that  they 
are  a  dead  letter  on  the  statute-book,  unless  some 
mean-souled'* wretch  pleads  usury,  out  of  spite,  or  to 
avoid  an  honest  debt.  Common  sense  is  outraged 
by  a  law  which  requires  a  man  to  part  with  his 
property  at  less  than  the  actual  value;  and  when 
common  sense  is  against  a  law,  it  stands  a  slim 
chance  of  observance.  If  the  legal  rate  be  six,  and 
the  actual  worth  be  eight,  who  lends  at  six  ?  Not 
the  banks.  They  require  deposits  of  their  custom- 
ers, the  use  of  whose  money  shall  make  up  to  them 
the  difference  between  the  legal  and  the  actual  rate. 
The  modes  of  evasion  are  various,  but  they  are  ade- 
quate. Conscience  scarcely  speaks  at  all,  for  self- 
interest  and  common  sense  both  pronounce  the  law 
unjust.  Is  it  possible  that  the  honorable  gentlemen 
of  the  Ways  and  Means  Committee  really  suppose 
that  their  banks  will  loan  money  at  seven  per  cent, 
at  any  time,  when  its  actual  worth  shall  be  nine  per 
cent?  Doubtless  they  might  loan  at  that  nominal 
rate,  but  there  will  be  deposits,  or  a  consideration, 
or  an  "understanding"  in  the  premises.  Why 
then  have  a  law  that  is  sure  to  be  disregarded  ? 


ON  MONEY.  273 

But  usury  laws,  if  they  were  not  disregarded, 
would  be  even  worse  in  their  tendency  than  they  are 
now.  They  aim,  I  suppose,  to  aid  borrowers,  and 
make  it  easier  for  them  to  contract  loans.  But  are 
borrowers,  as  a  class,  any  more  deserving  of  the  fos- 
tering care  of  government  than  are  lenders  ?  Even 
if  it  could  make  its  interference  effective,  as  it  can 
not,  is  there  any  reason  why  government,  leaving 
these  borrowers  to  make  all  other  bargains,  sales, 
and  transfers  according  to  their  best  skill  and  judg- 
ment, should  rush  to  their  rescue  only  when  they 
propose  to  borrow  money  ?  If  they  are  competent 
to  do  their  other  business  for  themselves,  govern- 
ment pays  their  capacity  a  poor  compliment  in 
undertaking  to  help  them  in  the  single  matter  of 
making  loans ;  and  the  borrowers  in  turn  have  rea- 
son to  pray  to  be  delivered  from  their  friends,  since 
they,  of  all  others,  would  be  the  men  especially  in- 
jured, if  all  the  lenders  obeyed  the  usury  laws.  Sup- 
pose that  a  borrower  is  in  great  need  of  a  loan,  and 
that  for  some  reason  his  credit  is  now  a  little  weak. 
Many  men  would  be  willing  to  loan  him  at  nine  per 
cent,  which  affords  a  margin  for  the  extra  risk, 
but  at  seven,  which  we  will  suppose  the  maximum 
allowed  by  the  law,  he  cannot  borrow  a  dollar,  be- 
cause his  credit  is  not  quite  equal  to  the  best.  If, 
therefore,  the  lenders  obey  the  law,  he,  and  such  as 
he,  must  fail.  And  because  it  is  unlawful  to  take 
over  seven  per  cent,  he  will  be  obliged  to  pay  those 
who  are  willing  to  violate  the  law  ten  or  twelve,  to 
compensate  them  for  the  risk  and  odium  of  such 
violation,  while,  under  freedom,  he  could  borrow  at 
nine.     Moreover,  if  the  loanable  value  of  money  at 

18 


274  ELEMENTS  OF  POLITICAL  ECONOMY. 

the  time  be  actually  nine,  while  the  law  only  allows 
seven,  many  men  will  attempt  to  use  their  own  cap- 
ital productively,  who  would  otherwise  loan  it,  in 
order  to  realize  the  high  rate ;  and  this  action  of 
theirs  still  further  restricts  the  loan-market  and 
makes  it  more  difficult  to  borrow.  If,  then,  the 
purpose  of  government  be  to  aid  borrowers,  no 
means  could  be  more  unskilfully  chosen  for  that 
end  than  to  pass  usury  laws,  since  such  laws,  so 
far  as  they  are  obeyed,  have  necessarily  the  oppo- 
site tendency  ;  and  even  when  violated  redound  to 
the  disadvantage  of  borrowers,  so  long  as  the  laws 
themselves  are  popularly  regarded  as  of  any  legal  or 
moral  force. 

Governments  have  shown  a  noteworthy  inconsis- 
tency in  this  matter,  which  incidentally  proves  the 
unsoundness  of  their  whole  action.  While  announc- 
ing pains  and  penalties  to  those  w^ho  take  or  pay 
more  than  a  given  rate,  they  are  careful  never  to 
bind  themselves  down  to  any  given  rate.  Govern- 
ments are  always  more  or  less  borrowers,  and  if 
usury  laws  are  necessary  in  order  to  help  borrowers 
in  a  pinch,  there  ought  to  be  a  clause  in  the  organic 
law  of  every  country,  forbidding  the  government  to 
pay  and  its  lenders  to  take  any  more  than  a  certain 
rate  per  cent.  There  is  no  such  clause  in  any 
organic  law.  Governments  wisely  follow  the  nat- 
ural market,  and  borrow  low  when  they  can,  and 
pay  high  when  they  must.  In  the  last  months  of 
Mr.  Buchanan's  administration,  the  United  States 
paid  twelve  per  cent,  on  a  public  loan,  and  could  get 
but  little  at  that.  Sauce  for  the  goose  is  sauce  for 
the  gander,  and  if  usury  laws  are  good  for  the  citi- 


ON  MONEY.  275 

zens,  some  solid  reason  ought  to  be  rendered  why 
they  are  not  good  for  the  government.  The  truth  is, 
they  are  not  good  for  either,  since  natural  laws  are 
perfectly  competent  to  regulate  the  rate  of  interest, 
and  do  regulate  it  substantially  in  spite  of  a  facti- 
tious, impertinent,  and  mischief-inaking  interference. 
The  rate  of  interest  has  little  to  do  with  the  value  of 
money,  properly  so  called.  It  depends  on  the  propor- 
tion between  the  sums  of  money  ready  to  be  loaned 
in  any  market,  and  the  amount  wanted  at  that 
time  by  good  borrowers  in  that  market.  There  is  no 
value  more  constantly  variable  from  day  to  day,  and 
from  month  to  month,  than  the  loanable  value  of 
money.  The  natural  law  that  holds  the  rate  of  in- 
terest in  its  grasp  is  most  efficient.  Every  rise  in  the 
rate  tends  to  lessen  the  demand  of  borrowers,  and 
every  fall  to  enhance  that  demand,  and  thus  every 
rise  and  fall  of  interest  tends  to  check  itself,  and 
while  the  daily  and  monthly  variations  of  the  rate 
for  first-class  borrowers  are  very  considerable,  the 
general  average  of  the  rate  by  years,  especially  in 
England,  where  every  vestige  of  usury  laws  has 
been  swept  away,  is  remarkably  uniform.  The  ex- 
perience of  England  completely  confirms  our  reason- 
ing, and  makes  us  sure  that  we  are  right.  Indeed 
the  law  might  just  as  reasonably  say  that  every 
lender  shall  receive  six  per  cent.,  as  that  no  borrower 
shall  pay  over  seven.  To  say  either  is  to  defy  com- 
mon sense,  and  expose  law  to  contempt.  Adam 
Smith  left  the  "  Wealth  of  Nations  "  disfigured  by 
the  concession  that  governments  might  properly 
enough  pass  usury  laws  ;  but  it  is  gratifying  to  be 
able  to  add,  that  he  was  convinced  of  his  error  in 


2T6  ELEMENTS  OF  POLITICAL  ECONOMT. 

that  by  Bentham's  book  on  usury,  and  fully  ac- 
knowledged his  conviction  in  the  spirit  of  a  genuine 
lover  of  truth.  We  conclude,  then,  that  usury  laws 
are  needless,  since  interest,  like  all  other  prices,  will 
perfectly  adjust  itself.  They  are  disregarded,  since 
lenders  will  loan  or  withhold  their  money  according 
to  their  own  keen  sense  of  interest.  They  are  per- 
nicious, since  they  infringe  the  rights  of  property, 
and  tend  to  prevent  weak  borrowers  from  having  a 
fair  chance  in  the  market. 


ON  CURRENCY  IN  THE  UNITED  STATES.    277 


CHAPTER  XL 

ON  CURRENCY  IN  THE  UNITED  STATES. 

It  is  not  so  much  a  revolution  through  which  we 
have  been  passing  for  the  past  few  years,  as  it  is  a 
series  of  revolutions.  There  has  been  a  political 
revolution,  a  military  revolution,  a  social  revolution 
at  the  South,  and  a  monetary  revolution  the  country 
over.  It  is  difficult  for  us,  who  have  all  been  in  the 
current,  to  realize  the  rapidity  with  which  as  a  peo- 
ple we  have  been  borne  onwards  by  all  the  move- 
ments, and  the  actual  distance  from  our  point  of 
departure  which  we  have  already  reached.  The  best 
place  to  watch  the  river  is  on  the  shore.  If,  for  the 
sake  of  the  view,  we  throw  ourselves  out  in  fancy 
from  the  rush  of  the  stream,  and  take  a  fixed  posi- 
tion to  see  how  fast  we  have  been  moving  and  how 
far  we  have  come  in  the  matter  of  national  money, 
we  shall  be  struck  with  a  marvelous  transformation 
which  has  been  silently  and  now  almost  completely 
effected.  Unless  every  providential  and  political  sign 
shall  fail,  we  are  to  be  hereafter  one  homogeneous 
people,  distinct  indeed  in  our  States  as  the  billows, 
but  one  in  our  Union  as  the  sea ;  having  one  set  of 
national  rights  for  all  the  inhabitants  within  our 
borders,  and  having  also,  and  this  is  the  point  of 
present  consideration,  one  national  money,  current 


278  ELEMENTS  OF  POLITICAL  ECONOMY. 

and  good  everywhere,  a  sign  and  seal  of  national 
unity  and  of  consolidated  strength. 

I  venture  to  offer  to  guide  my  readers  in  an  attempt 
to  trace  the  steps,  State  and  national,  as  well  the 
earlier  as  the  more  recent,  which  have  been  made  in 
this  country  to  find  the  way  to  a  healthy,  safe,  and 
uniform  currency.  Paper  money  of  almost  every 
conceivable  variety  has  been  tried  at  one  time  and 
another;  and  the  national  government  for  itself, 
between  1836  and  1862,  discarded  in  its  own  trans- 
actions every  kind  of  paper,  both  paying  out  and 
demanding  to  receive  gold  and  silver  money  only, 
minting  indeed  at  a  small  seignorage  for  all  parties 
and  in  all  quantities  gold  and  silver  that  was  brought 
to  it,  but  otherwise  leaving  the  States  and  the  people 
to  fabricate  and  circulate  whatever  kinds  of  money 
they  might  choose. 

From  the  first  establishment  of  the  English  colo- 
nies in  America,  the  matter  of  a  suitable  exchange- 
medium  attracted  public  attention,  and  was  found  to 
be  attended  with  difficulties.  The  colonists  drew  all 
their  supplies  from  the  mother  country,  and  for  a 
long  time  had  but  few  native  products  to  export  in 
return,  and  consequently  there  was  a  constant  ten- 
dency in  the  coin  which  reached  them  to  flow  off 
again  to  England  in  payment  of  these  debts.  But 
something  must  be  used  for  the  purposes  of  domestic 
exchange.  Tobacco  in  the  southern  colonies,  and 
corn  and  cattle  in  the  northern,  were  employed  for  a 
long  time  as  a  local  and  legalized  currency. 

In  1690  Massachusetts  set  the  first  example,  which 
was  soon  imitated  all  over  the  country,  of  issuing 
bills  of  credit,  a  government  paper  made  receivable  in 


ON  CURRENCY  IN  THE  UNITED  STATES.    279 

taxes,  and  afterwards  made  legal  tender  in  payment  of 
ordinary  debts.  At  first  these  bills,  or  treasury-notes, 
were  issued,  not  to  furnish  a  currency,  but  merely  as 
a  convenient  way  of  anticipating  the  taxes,  that  is, 
to  realize  them  at  the  beginning  of  the  year,  while 
they  would  be  gradually  paid  in  in  the  course  of  the 
year.  They  were,  in  short,  an  imitation  in  all 
respects  of  the  English  exchequer-bills.  Afterwards, 
a  scheme  originating  in  South  Carolina  came  into 
general  favor,  namely,  to  open  loan-offices  for  the 
issue  of  colony-bills,  which  should  furnish  at  once  . 
capital  for  borrowers,  and  a  currency  for  the  people, 
and  the  interest  was  to  be  a  source  of  revenue  to  the 
colony. 

But  in  whatever  way  issued,  whether  in  the  way 
of  loan  to  borrowers,  or  in  anticipation  of  the  taxes, 
the  essential  and  inherent  vice  of  such  irredeemable 
paper  was  soon  everywhere  apparent.  There  was  a 
constant  tendency  to  over-issue,  and  consequently  a 
necessary  depreciation.  There  never  was  a  govern- 
ment yet,  of  all  those  which  have  attempted  the  issue 
of  inconvertible  paper,  which  had  prudence  and  firm- 
ness enough  to  resist  for  any  great  length  of  time  the 
temptation  to  issue  such  paper  in  excess.  It  always 
has  depreciated  from  that  cause,  and  it  probably 
always  will.  So  it  was,  at  any  rate,  in  these  colonies 
thus  early  in  our  history.  The  bills  of  credit  were 
issued  profusely,  and  depreciated  indefinitely.  In 
1748  Massachusetts  had  found  paper  money  so 
utterly  wanting  as  a  measure  of  value,  that  she  deter- 
mined to  abandon  it  altogether.  She  redeemed  all 
her  outstanding  bills  in  cash  at  the  current  rate  of 
twelve  for  one. 


280  ELEMENTS  OF  POLITICAL  ECONOMY. 

The  demands  of  the  old  French  war,  and  the  va- 
rious attempts  to  conquer  Canada,  led,  on  the  part  of 
all  the  colonies  except  Massachusetts,  to  new  and 
large  issues  of  bills  of  credit,  which  depreciated  of 
course.  Soon  after  the  conquest  of  Canada  the 
British  Parliament  passed  an  act  prohibiting  to  all 
the  colonies  the  issue  of  bills  of  credit ;  but  from  this 
restraint  the  Revolution  set  them  free  ;  and,  to  pro- 
vide means  for  the  desperate  struggle  with  the  mother- 
country,  there  was  no  resource  but  in  paper  money. 

In  April,  1775,  Massachusetts,  which  had  disused 
paper  money  for  more  than  a  quarter  of  a  century, 
revived  its  use  by  authorizing  the  issue  of  colonial 
bills  to  the  amount  of  £100,000,  in  sums  small 
enough  to  circulate  as  a  currency ;  and  on  the  23d 
of  June  following  the  Continental  Congress  began 
its  fiscal  operations  by  voting  to  emit  two  millions 
of  dollars  in  continental  bills  of  credit.  In  July  an- 
other million  was  authorized  to  be  issued,  and  the 
liability  for  the  three  millions  was  distributed  among 
the  colonies  in  the  ratio  of  their  supposed  number  of 
inhabitants ;  the  bills  to  be  redeemed  in  four  annual 
instalments,  to  commence  at  the  end  of  four  years. 
In  November  an  additional  three  millions  was  or- 
dered, to  be  apportioned  and  redeemed  like  the  for- 
mer, only  the  redemption  was  to  begin  at  the  end  of 
eight  years.  In  the  following  February  came  four 
millions  more,  one  million  of  which  was  in  bills  of  a 
less  denomination  than  one  dollar.  Eighteen  months 
had  elapsed,  and  twenty  millions  of  continental  paper 
had  been  authorized,  besides  large  local  issues,  espe- 
cially in  New  England,  before  any  very  considerable 
signs  of  depreciation  made  their  appearance.    It  soon, 


ON  CURRENCY  IN  THE  UNITED  STATES.    281 

however,  became  evident  that  the  only  way  to  stop 
the  depreciation  would  be  to  stop  the  issues ;  and 
Congress  made  very  persistent  but  ineffectual  at- 
tempts to  substitute  for  further  issues  a  system  of 
loans  on  paper  bearing  interest.  At  the  same  time 
they  sought  to  sustain  their  failing  credit  by  a  reso- 
lution that  their  bills  "  ought  to  pass  current  in  all 
payments,  trade,  and  dealings,  and  be  deemed  equal 
in  value  to  the  same  nominal  sums  in  Spanish  dol- 
lars "  ;  and  that  all  persons  refusing  to  take  them 
ought  to  be  considered  "  enemies  of  the  United 
States,"  upon  whom  it  was  recommended  to  the 
local  authorities  to  inflict  "  forfeitures  and  other  pen- 
alties." The  States  were  also  advised  to  make  these 
bills  a  legal  tender,  to  make  provision  for  the  redemp- 
tion of  the  first  six  millions,  to  avoid  the  further 
emission  of  their  own  local  bills,  and  to  take  meas- 
ures to  draw  in  those  already  out.^  The  loan  sys- 
tem failing,  Congress  reluctantly  had  recourse  to  the 
press  which  printed  the  paper  money,  and  the  next 
ten  millions  increased  the  depreciation  decidedly. 
This  issue  was  authorized  in  February,  1777,  and  in 
August  came  two  millions  more,  in  November  a 
million,  and  another  million  in  December,  making 
thirty-four  millions  in  3,\\.  At  the  beginning  of  the 
year  the  bills  were  nearly  at  par,  and  at  its  close  they 
passed  at  three  or  four  for  one.  During  the  first 
half  of  the  next  year  twenty-three  millions  and  a 
half  were  added  to  the  already  superabundant  mass, 
and  the  depreciation  became  alarming.  Forty  mil- 
lions more  were  added  in  the  last  half  of  the  year, 
and    the   depreciation    at   the    beginning    of    1779 

1  Hildreth's  United  States,  Chap.  35. 


282  ELEMENTS   OF  POLITICAL  ECONOMY. 

amounted  in  the  North  to  six,  in  the  South  to  eight 
for  one.  Before  that  year  was  half  gone,  under  the 
influence  of  large  additions,  the  depreciation  reached 
twenty  for  one.  The  paper  was  still  lawful  tender 
in  payment  of  debts ;  and  notwithstanding  the  con- 
fusion of  contracts,  the  universal  high  prices,  the 
sufferings  of  the  poor,  and  the  gains  of  the  artful  and 
unscrupulous.  Congress  felt  obliged  to  give  currency 
to  the  most  wretched  sophistries,  to  refer  the  existing 
depreciation  mainly  to  "  want  of  confidence,"  and  to 
laud  the  paper  as  the  only  kind  of  money  "which 
cannot  make  to  itself  wings  and  fly  away!  It  re- 
mains with  us,  it  will  not  forsake  us,  it  is  always 
ready  at  hand  for  the  purposes  of  commerce,  and 
every  industrious  man  can  find  it!  "  The  rest  of  the 
story  is  soon  told.  Before  the  end  of  the  year,  the 
remainder  of  the  two  hundred  millions,  which,  in  the 
vain  hopes  of  stopping  the  depreciation,  Congress 
had  beforehand  announced  as  the  limit  of  the  issues, 
was  put  out,  and  the  press  was  allowed  to  rest.  The 
value  of  the  money  was  then  about  thirty  for  one. 
The  States  were  now  advised  to  repeal  all  laws  mak- 
ing the  bills  a  legal  tender,  and  the  scheme  of  the 
"new  tenor"  was  devised,  by  which  the  old  bills  were 
to  be  drawn  in  at  the  rate  of  forty  for  one,  and  funded 
in  government  bonds  bearing  interest.  This  was  the 
finishing  blow,  and  the  paper  soon  dropped  out  of 
circulation  altogether.  Just  before  the  Revolutionary 
army  in  camp  at  Newburgh  had  combined  to  refuse 
it,  and  its  circulation  was  wholly  stopped,  it  ex- 
changed for  cash  at  the  rate  of  one  thousand  for  one. 
The  whole  country  experienced  in  money  matters 
just  exactly  what  rebeldom  has  lately  experienced, 


ON  CURRENCY  IN  THE  UNITED  STATES.    283 

money  going  down  and  prices  going  up,  till  at  last 
they  would  n't  touch  anyhow!  A  man  in  New 
England  or  New  York  would  pay  five  hundred  dol- 
lars for  his  dinner,  and  never  ask  the  landlord  to 
reduce  the  bill.  I  heard  the  story  in  my  childhood 
of  a  certain  gentleman  well  known  in  those  parts, 
who  stuffed  his  sulky-box  with  continental  bills  and 
then  sallied  forth  to  purchase  a  cow! 

At  this  juncture  the  rudiments  of  a  better  system 
appeared.  For  nearly  a  hundred  years  the  Bank  of 
England  had  been  issuing  paper  payable  on  demand 
in  gold  and  silver.  Alexander  Hamilton  had  been 
a  close  student  of  English  history  and  of  English 
finance,  and  he  conceived  that  the  same  thing  might 
be  done  with  advantage  in  America.  In  1780,  when 
he  was  only  twenty-three  years  old,  he  wrote  a  letter 
to  Robert  Morris,  a  wealthy  and  influential  member 
of  the  Continental  Congress,  and  afterwards  the 
Continental  financier,  in  which,  after  sho'wing  the 
causes  of  the  depreciation  of  the  currency,  and  the 
necessity  of  a  foreign  loan,  he  furnished  a  matured 
plan  of  a  bank,  by  means  of  which  the  loan  might 
be  so  applied  as  to  reestablish  the  public  credit  and 
become  the  basis  of  a  redeemable  currency.  This 
was,  as  I  believe,  the  first  suggestion  of  a  banking 
institution  for  America.  Hamilton's  idea  was  briefly 
this :  Public  credit  there  was  none ;  an  established 
government  there  was  none ;  the  Continental  Con- 
gress was  exercising  the  unlimited  functions  of  a 
revolutionary  government ;  under  these  circumstances 
the  only  way  to  create  public  credit  was  to  unite 
with  it  the  private  interests  of  moneyed  men.  Es- 
tablish then  a  bank  which  shall  be  the  fiscal  agent 


284  ELEaiENTS  OF  POLITICAL  ECONOMY. 

of  the  government;  obtain,  if  possible,  a  foreign 
loan,  and  deposit  it  in  cash  in  the  bank ;  let  half  the 
stock  of  the  bank  be  subscribed  by  wealthy  men, 
who  can  reasonably  look  for  a  fair  profit  on  their 
investment ;  let  government  hold  the  other  half  and 
have  half  the  profits  ;  then  let  the  bank  issue  bills  on 
its  cash  basis,  consisting  of  the  loan,  the  private  sub- 
scriptions, and  the  product  of  the  Continental  taxes 
as  they  are  gradually  paid  in.  Thus  the  bank,  and 
all  subscribers  to  its  stock,  and  all  holders  of  its  bills 
would  be  directly  interested  to  uphold  the  govern- 
ment and  its  credit.  Community  would  be  equally 
benefited,  since  it  would  have  a  relatively  sound 
paper  for  ordinary  commercial  purposes. 

Mr.  Morris  found  his  duties  as  Continental  finan- 
cier sufficiently  embarrassing;  and  in  the  fall  of 
1781  brought  forward  a  scheme  for  a  national  bank, 
partially  embodying  on  a  small  scale  the  ideas  of 
Hamilton.  Congress  sanctioned  the  plan,  and  the 
Bank  of  North  America,  the  first  bank  in  this  coun- 
try, was  established  in  Philadelphia.  Mr.  Morris,  in 
behalf  of  the  general  government,  subscribed  nearly 
two  thirds  of  the  capital  stock  of  $400,000,  and  nat- 
urally took  the  entire  control  of  the  institution.  The 
reason  why  individuals  subscribed  so  little  is  to  be 
found  in  the  distrust  with  which  paper  money  of  all 
kinds  had  come  to  be  regarded.  Capitalists  did  n't 
believe  there  would  be  any  dividends,  and  the  peo- 
ple were  afraid  the  paper  would  depreciate  in  their 
hands.  Under  these  unfavorable  circumstances  the 
bank  went  into  operation  in  January,  1782.  Every 
effort  was  made  to  produce  a  public  sentiment  favor- 
able to  the  credit  of  the  bank,  and  its  bills  were  the 


ON  CURRENCY  IN  THE  UNITED  STATES.  285 

first  paper  handled  by  Americans  which  was  con- 
vertible into  coin  at  the  pleasure  of  the  holders. 
Being  made  receivable  at  the  Federal  and  State  treas- 
uries in  payment  of  taxes  and  duties,  and  being 
cautiously  issued  at  first,  the  bills  soon  came  into 
such  circulation  that  the  bank  was  able  to  declare 
dividends  on  its  stock  from  twelve  to  sixteen  per 
cent,  per  annum.  Who  ever  heard  of  capitalists 
who  could  resist  sixteen  per  cent  ?  The  bank 
opened  its  books  for  new  subscriptions,  and  the 
stock  went  up  without  difficulty  from  $400,000  to 
$2,000,000. 

We  must  here  dismiss  the  Bank  of  North  Amer- 
ica, the  parent  of  all  our  institutions  of  the  kind, 
with  the  remark  that,  although  it  was  chartered  by 
the  old  Congress  as  a  national  institution,  such 
doubts  were  entertained  of  the  competency  of  that 
body  to  incorporate  an  institution  within  a  State, 
that  a  charter  was  soon  after  procured  from  the 
legislature  of  Pennsylvania ;  and  also,  that  its  con- 
nection with  the  Continental  treasury  ceased,  on  the 
retirement  of  Mr.  Morris  from  the  office  of  financier. 
It  continued,  however,  as  a  State  bank ;  and  it  flour- 
ishes still  in  a  green  old  age  among  the  banking  con- 
cerns of  the  Quaker  City. 

Till  Mr.  Morris's  Bank  of  North  America  com- 
menced operations  in  January,  1782,  all  the  paper 
that  had  been  issued  in  the  country,  whether  by  the 
colonies  as  such  or  by  the  central  authority  repre- 
sented at  first  by  the  revolutionary  government  and 
afterwards  by  the  confederation,  was  irredeemable 
paper,  and  illustrated  the  universal  financial  law 
that  such  paper,  unless  issued  under  very  favorable 


286  ELEMENTS  OF  POLITICAL  ECONOMY. 

circumstances  and  strictly  limited  in  quantity,  will 
depreciate  in  spite  of  everything.  The  bills  of  the 
Bank  of  North  America  were  convertible  into  gold 
and  silver  at  the  pleasure  of  the  holders,  and  they 
mark,  therefore,  an  epoch  in  the  monetary  history  of 
the  country.  Some  silver  coins  had  been  issued  in 
Massachusetts  as  early  as  1652,  and  continued  to  be 
struck  at  the  colonial  mint  for  about  thirty  years,  but 
the  pieces  all  bear  the  dates  of  1652  or  1662 ;  and 
these  pieces,  now  known  and  prized  as  the  "  old  pine- 
tree  coinage,"  were  the  only  public  coins  of  any  de- 
scription minted  in  the  country  itself  until  after  the 
close  of  the  Revolutionary  war.  They  were  shillings, 
sixpences,  threepences,  and  twopences.  Both  silver 
and  copper  coins  were,  however,  minted  in  England 
for  the  use  of  the  colonies;  and  in  1722  a  patent 
was  issued  by  George  I.  to  one  William  Wood  to 
make  coins  for  colonial  use  out  of  pinchbeck,  in  pur- 
suance of  which  he  had  the  conscience  to  make  thir- 
teen bright  shillings,  or  thereabouts,  out  of  a  pound 
of  brass.  It  is  refreshing  to  add  that  the  colonists 
had  the  sense  and  spirit  utterly  to  reject  Wood's 
money.  In  1786  actual  coinage  of  copper  coins 
took  place  under  State  authority,  in  Vermont,  in 
Connecticut,  and  in  New  Jersey.  The  same  year 
witnessed  the  adoption  in  the  old  Congress  of  Jef- 
ferson's plan  for  a  decimal  currency,  and  the  estab- 
lishment of  a  mint  under  national  authority,  and 
three  hundred  tons  of  Federal  copper  cents  were  con- 
tracted to  be  struck  the  following  year. 

When  the  government  went  into  operation  under 
the  present  constitution,  in  1789,  besides  the  Bank 
of  North  America,  two  others  had  been  established, 


ON  CURRENCY  IN  THE  UNITED  STATES.    287 

the  Bank  of  New  York  in  New  York,  and  the  Bank 
of  Massachusetts  in  Boston.  These  three  were  all, 
and  their  circulation  was  mostly  confined  to  the 
cities  in  which  they  were  located.  Except  the  cop- 
per cents  just  spoken  of,  there  was  no  such  thing  as 
a  national  currency,  and  the  .new  government  had 
not  sufficient  credit  to  make  it  practicable  to  rely  on 
the  aid  of  private  lenders.  Hamilton  was  now  Sec- 
retary of  the  Treasury.  In  pursuance  of  the  duty  of 
his  office,  he  presented  to  Congress  in  December, 
1790,  his  celebrated  report,  recommending  the  estab- 
lishment of  a  Bank  of  the  United  States.  In  this 
report,  which  at  once  gave  Hamilton  a  European 
reputation,  two  points  were  specially  argued :  first, 
that  such  an  institution  would  afford  through  its  bills 
great  facilities  to  trade  and  to  domestic  exchanges  ; 
and,  second,  would  furnish  the  new  government  a 
convenient  paper  medium  for  its  monetary  transac- 
tions, and  be  a  resource  for  temporary  loans.  The 
first  point  respected  the  people,  the  second  the  gov- 
ernment. 

There  can  be  no  doubt,  I  think,  that  in  the  circum- 
stances of  that  time  a  national  bank  was  expedient 
and  beneficial.  There  was  then  no  confidence,  no 
credit,  no  currency,  and  no  commercial  relations  es- 
tablished with  foreign  nations  by  which  gold  and 
silver  could  flow  into  the  country.  As  an  institution 
of  loan,  the  bank  gave  credit  to  the  extent  of  its 
means  to  all  who  had  good  security  to  offer.  As  an 
institution  of  circulation,  it  furnished  a  convenient, 
a  convertible,  and  a  national  money.  As  a  govern- 
mental fiscal  agent,  government  could  borrow  of  it 
on  an  emergency,  and  pay  at  its  leisure  from  the 


288  ELEMENTS  OF  POLITICAL  ECONOMY.- 

proceeds  of  the  imposts  and  taxes.  The  fullest  ac- 
knowledgment, however,  of  the  benefits  of  such  an 
institution  at  that  time  does  not  at  all  commit  one 
to  the  defence  of  any  such  institution  now%  Cir- 
cumstances have  utterly  changed.  *No  well-estab- 
lished national  government  can  afford  to  add  to  its 
many  and  higher  functions  the  delicate  duty,  so 
much  more  appropriate  to  private  bankers,  of  loan- 
ing money  to  the  people  on  interest  according  to  its 
notion  of  their  solvency ;  and,  in  a  republic  especially, 
where  hostile  parties  alternately  administer  the  gov- 
ernment, loans  would  be  sure  to  be  made  for  parti- 
san purposes,  and  corruption  find  the  bank  a  ready 
tool. 

The  constitutionality  of  Hamilton's  plan  was 
stoutly  denied  in  Congress.  The  first-rate  abilities 
and  growing  reputation  of  that  eminent  statesman 
had  already  awakened  jealousies  both  in  Congress 
and  in  the  cabinet.  Nevertheless,  a  bill,  in  substan- 
tial accordance  with  the  views  of  the  Secretary 
passed  both  houses  by  large  majorities.  Washing- 
ton, before  signing  it,  required  the  written  opinion 
of  his  cabinet  on  the  question  of  constitutionality. 
Hamilton  and  Knox  took  the  affirmative;  Jefferson 
and  Randolph  the  negative;  the  President,  as  usual, 
sided  with  Hamilton,  and  signed  the  bill. 

On  New  Year's  day,  1853,  I  had  the  great  per- 
sonal pleasure  of  calling  on  the  widow  of  Alexan- 
der Hamilton,  who  survived  him  just  fifty  years. 
Turning  the  conversation  on  her  husband's  connec- 
tion with  the  government,  the  old  lady  remarked 
with  enthusiasm,  —  "  My  husband  gave  you  a  bank. 
Jefferson  thought  we  ought  not  to  have  any  bank, 


ON  CURRENCY  IN  THE  UNITED  STATES.    289 

and  Washington  rather  thought  so,  too;  but  my  hus- 
band said  we  must  have  a  bank ;  and  one  day  he 
said  to  me,  *  My  dear,  you  must  sit  up  with  me  to- 
night, and  write  for  me;'  and  I  sat  up  all  night,  and 
I  wrote  it  out  w^ith  my  own  hand,  and  the  next 
morning  he  carried  it  to  Washington,  and  we  had  a 
bank ! "  This  last  was  pronounced  not  without  ex- 
ultation. Fortunate  old  lady !  The  daughter  of  one 
of  the  purest  and  most  magnanimous  of  the  Revolu- 
tionary patriots,  Gen.  Philip  Schuyler,  and  the  wife 
of  another,  peerless  among  the  statesmen  of  his  time; 
w^ho  herself  lived  to  see  the  complete  success  of  the 
work  to  which  her  father  and  husband  were  among 
the  chief  contributors. 

With  a  charter  that  was  to  run  twenty  years,  with 
a  capital  stock  of  $10,000,000,  $8,000,000  of  which 
was  subscribed  by  individuals,  and  $2,000,000  by 
the  United  States,  and  the  whole  of  which  was  sub- 
scribed, with  a  surplus,  within  a  few  hours,  the  first 
United  States  Bank  went  into  operation  at  Phila- 
delphia, in  July,  1791.  Notice  this  feature  of  the 
stock.  Hamilton  had  just  before  persuaded  Con- 
gress to  assume  the  State  debts  incurred  in  the  war 
of  the  Revolution,  and  to  fund  them,  together  with 
the  certificates  of  the  public  debt,  into  one  new  and 
compact  debt.  Three  fourths  of  the  subscription  of 
individuals  to  the  bank  stock  must  be  in  these  new 
government  stocks  which  bore  six  per  cent.  The 
demand  for  them,  thus  created,  brought  them  in- 
stantly up  to  par ;  so  that  the  bank  was  made  a 
means,  incidentally,  of  establishing  the  credit  of  the 
United  States,  —  all  its  paper  was  now  at  par.  This 
splendid  success  of   Hamilton's  financial  schemes, 

19 


290  ELEMENTS  OF  POLITICAL  ECONOMY. 

together  with  the  unexpected  income  from  the  new- 
tariff,  accounts  in  part  for  the  immense  popularity 
of  the  man;  and  justifies  the  strong  expression  of 
Daniel  Webster,  who  said,  on  one  occasion,  that 
Alexander  Hamilton  raised  the  public  credit  of  the 
United  States  from  the  dead. 

During  twenty  years,  the  term  of  its  charter,  the 
operation  of  the  first  United  States  Bank  appears 
to  have  been  healthful  and  beneficent.  It  furnished 
a  paper  money  secured  by  government  stocks  and 
by  cash  that  was  current  at  a  uniform  value  all  over 
the  country ;  its  loans,  under  the  circumstances  of 
the  time,  gave  a  sharp  spur  to  industry  and  com- 
merce ;  while  its  dividends  to  stockholders  never  fell 
below  eight,  and  frequently  rose  to  ten  per  cent.  It 
is  not  to  be  wondered  at,  therefore,  that  as  the  time 
approached  for  the  charter  to  expire,  the  stockhold- 
ers were  anxious  for  a  renewal.  They  applied  for 
such  renewal,  offering  to  pay  the  government  a  mill- 
ion and  a  quarter  for  the  privilege  of  continuance. 
It  was  alleged  against  the  bank,  on  the  other  hand, 
that  the  stock  was  now  largely  owned  by  foreigners, 
which  was  true ;  and  that  the  directors  had  some- 
times made,  or  withheld,  loans,  for  party  purposes, 
which  was  doubtful.  The  real  cause  of  the  opposi- 
tion to  the  renewal  of  the  charter  was  this :  Instead 
of  the  three  State  banks  in  existence  when  the  na- 
tional institution  was  chartered,  there  were  now 
(1811)  eighty-eight  State  banks,  in  some  of  which 
the  States  as  such  held  stock.  These  banks  and 
their  friends  supposed  that  it  would  be  for  their 
interest  that  the  national  bank  should  go  out  of  be- 
ing; that,  in  that  case,  they  should  obtain  the  cus- 


ON  CURRENCY  IN  THE  UNITED  STATES.    291 

tody  and  management  of  the  national  funds,  and 
furnish  the  country  the  currency,  which  the  national 
institution  had  furnished.  The  charter  was  defeated, 
in  the  House  by  one  vote,  and  in  the  Senate  by  the 
casting  vote  of  the  Vice-President,  George  Clinton. 
The  bank  was  obliged  to  wind  Tip  its  affairs.  It  did 
so  speedily  and  honestly.     This  was  in  1811. 

Undoubtedly  the  paper  of  the  first  national  bank 
was  very  good  money,  and  certainly  superior  to  the 
bills  of  the  new  State  banks,  for  the  creation  of 
which  there  was  a  sort  of  mania  in  the  country  so 
soon  as  it  was  ascertained  that  the  national  institu- 
tion could  not  be  rechartered.  Many  of  these  went 
into  operation  on  the  strength  of  little  or  no  bona 
fide  capital.  They  issued  their  notes  freely,  and 
the  chasm  caused  by  the  withdrawal  of  the  national 
circulation  was  soon  filled  up,  and  more  too.  As  a 
necessary  consequence,  the  whole  circulating  me- 
dium became  depreciated,  and  the  currency  came 
into  dreadful  disorder  throughout  the  country.  In 
the  fall  of  1814,  there  was  a  general  stoppage  of  all 
the  banks  in  the  United  States,  except  those  in  New 
England.  The  notes  of  the  New  York  city  banks 
were  ten  per  cent,  below  par;  those  of  Philadel- 
phia, eighteen  ;  of  Baltimore,  twenty ;  of  Pittsburg, 
twenty-five.  All  this  illustrates  the  simple  financial 
truth,  that  money  is  not  a  commodity  of  which  an 
unlimited  quantity  can  be  absorbed  by  business,  but 
is  an  instrument  for  a  certain  specific  purpose, — 
namely,  to  facilitate  the  exchange  of  existing  com- 
modities and  of  services  all  ready  to  be  exchanged, 
and  only  waiting  for  the  presence  of  the  medium 
to   consummate   the   transfer;    and  whenever  more 


292  ELEMENTS  OF  POLITICAL  ECONOMY. 

than  enough  for  this  purpose  is  put  out,  whether  it 
be  specie  or  paper,  the  depreciation  of  the  whole 
mass  is  inevitable ;  on  the  same  principles  precisely 
as,  when  the  market  is  permanently  overstocked 
with  sewing-machines,  there  will  be  an  inevitable 
decline  in  their  value.  Money  is  good  for  the  pur- 
pose for  which  it  was  invented,  and  useless  for  any 
other.  So  are  sewing-machines.  When  more  of 
either  is  offered  than  enough  to  serve  their  respective 
purposes,  in  the  then  circumstances  of  society,  de- 
cline in  the  value  of  both  is  a  matter  of  necessity. 
In  1814  there  was  not  only  too  much  money  to  do 
the  work  which  money  was  needed  at  that  time  to 
do,  but,  also,  much  of  it  was  of  very  inferior  quality. 
There  was  no  sufficient  genuine  value  behind  the 
paper  to  support  it. 

In  this  state  of  things  Mr.  Dallas,  then  Secretary 
of  the  Treasury,  recommended  to  Congress  the  estab- 
lishment of  a  new  United  States  Bank,  modelled 
after  the  first,  with  a  charter  for  twenty  years,  with  a 
capital  stock  of  $35,000,000,  the  bank  to  pay  the 
government  a  bonus  of  a  million  and  a  half  for  the 
privilege  of  coming  into  being.  It  was  thought  that 
a  strong  central  and  national  institution,  on  which 
the  State  banks,  now  increased  in  number  to  two 
hundred  and  forty-six,  might  lean  for  support,  would 
enable  them  shortly  to  resume  specie  payments,  and 
to  go  on  thereafter  on  better  principles.  The  bill 
organizing  the  bank  was  engineered  through  the 
House  by  John  C.  Calhoun.  It  went  into  operation 
in  1816,  just  after  the  close  of  the  last  war  with 
England,  when  the  reviving  enterprise  and  enlarged 
business  of  peace  seemed  to  open  up  before  it  a 
prosperous  career. 


ON  CUSRENCY  IN  THE  UNITED  STATES.     293 

The  new  bank  was  not,  however,  at  first,  fortunate 
in  its  management.  It  pushed  its  paper  into  circu- 
lation with  reckless  eagerness.  In  the  course  of  one 
month  it  increased  its  discounts  from  three  to  twenty 
millions,  and  in  nine  months  its  discount  line  was 
thirty-three  millions.  The  results  were  what  might 
have  been  expected, — prices  universally  high,  a  spirit 
of  speculation  everywhere  rife,  and  gold  leaving  the 
country  by  shiploads.  The  bank  soon  fell  into 
difficulties,  and  public  opinion  turned  more  or  less 
against  it.  Although  under  the  abler  and  more 
careful  management,  first  of  Langdon  Cheves,  and 
then  of  Nicholas  Biddle,  the  bank  recovered  its  sta- 
bility, it  never  enjoyed  quite  the  same  confidence 
and  credit  as  the  first  bank. 

This  was  not  wholly  its  own  fault ;  for  in  1829, 
seven  years  before  its  charter  was  to  expire,  Andrew 
Jackson  commenced  his  famous  contest  with  the 
bank,  which  he  kept  up  without  intermission  till  the 
charter  expired  in  1836.  Under  this  presidential  and 
consequent  congressional  fire,  the  bank  can  hardly 
be  said  to  have  had  a  fair  chance.  Andrew  Jackson 
had  sworn  its  death  by  the  'tarnal — his  usual  oath  — 
and  Andrew  Jackson  was  not  a  man  to  be  thwarted. 
In  his  annual  message  in  1829,  he  gave  the  directors 
fair  warning  that  there  would  be  "  constitutional 
difficulties  "  in  the  way  of  their  securing  any  exten- 
sion of  their  privileges,  and  in  1832  he  vetoed  the 
bill  to  recharter  the  bank.  The  next  step  was  to 
remove  from  the  custody  and  management  of  the 
bank  the  public  moneys.  Three  years  before  the 
charter  expired  he  requested  Mr.  McLane,  the  Secre- 
tary of  the  Treasury,  to  remove  the  national  funds 


294  ELEMENTS  OF  POLITICAL  ECONOMY. 

from  the  custody  of  the  bank,  and  to  place  them  in 
certain  selected  State  banks.  Mr.  McLane  declined 
to  order  the  removal.  Whereupon  Mr.  Duane  of 
New  York  was  appointed  to  the  treasury.  But  Mr. 
Duane,  no  more  than  his  predecessor,  could  see  his 
way  clear  to  remove  the  deposits.  When  made  to 
understand  that  it  was  the  determination  of  the 
President  to  have  them  removed  at  all  hazards,  he 
explicitly  refused  to  lend  himself  for  the  purpose. 
The  President  removed  Mr.  Duane,  and  appointed 
Roger  B.  Taney,  the  late  Chief  Justice,  as  Secretary 
of  the  Treasury.  He  proved  more  flexible  to  the  will 
of  power,  and  immediately  gave  the  required  order. 
The  consequences  of  this  step  in  the  circumstances 
were  immense  and  mischievous.  The  discount  line 
of  the  bank  was  at  the  moment  over  $60,000,000. 
The  public  deposits  were  $10,000,000.  The  sudden 
withdrawal  of  this  sum  affected  credit  and  disar- 
ranged business  to  a  remarkable  degree,  and  caused 
intense  excitement  all  over  the  Union. 

The  next  movement  in  the  "  great  experiment,"  as 
it  was  sarcastically  called  in  the  politics  of  the  day, 
was  the  issue  of  the  famous  specie -circular,  which 
directed  the  receivers  of  the  public  money  to  take 
nothing  but  gold  and  silver  in  payment  of  the  public 
lands.  Speculators  and  others  had  been  making 
large  purchases  of  western  lands,  expecting  to  pay 
in  paper  money.  The  specie-circular  came  upon 
them  like  a  clap  of  thunder.  Their  consternation 
was  vast,  and  the  circular,  coming  as  it  did,  shortly 
after  the  removal  of  the  deposits,  made  confusion 
worse  confounded. 

General  Jackson  went  out  of  office,  and  the  second 


ON  CURRENCY  IN  THE  UNITED  STATES.    295 

bank  went  out  of  being  the  same  year ;  but  the 
inaugurated  movement  was  completed  by  Mr.  Van 
Buren,  who  effected  the  complete  divorce  of  the 
government  from  all  banks  and  fiscal  agents  what- 
ever, first,  by  directing  the  State  banks  which  now 
had  the  keeping  of  the  public  moneys,  to  distribute 
them  as  surplus  revenue  among  the  States ;  and,  by 
the  sub-treasury  scheme,  in  pursuance  of  which  the 
United  States  received  in  payment  of  all  dues,  and 
paid  out  in  all  disbursements,  gold  and  silver  only. 
I  believe  in  gold  and  silver  money,  or  their  equiv- 
alent in  representative  paper  which  can  be  instant- 
ly converted  into  them,  and  do  not  question  the 
patriotic  aims  of  the  administrations  concerned,  but 
there  was  something  headlong  and  violent  in  this 
transition  from  the  traditional  policy  of  the  govern- 
ment to  the  new  system.  The  successive  steps  fail 
to  commend  themselves  to  impartial  men  as  wise. 
They  wrought  immense  mischiefs  at  the  time,  con- 
tributed largely  to  the  terrible  financial  crisis  of  1837, 
and  were  a  leading  cause,  no  doubt,  of  the  defeat  of 
Van  Buren  in  1840,  and  the  triumphant  election  of 
General  Harrison.  Such  changes  ought  always  to 
be  carefully  prepared  for  and  gradually  introduced. 

From  1836  to  1862  there  was  no  national  money 
in  the  United  States,  except  the  coin  ;  the  paper 
currency  was  furnished  by  a  number,  increased  at 
last  to  over  fifteen  hundred,  of  joint-stock  banking 
companies,  under  the  sole  authority  of  the  States. 
These,  under  various  and  often  conflicting  regula- 
tions, manufactured  and  issued  money  for  the  peo- 
ple. This  money,  as  a  whole,  was  never  a  safe,  a 
uniform,  an  economical  currency.     It  was  subject  to 


296  ELEMENTS  OF  POLITICAL  ECONOMY. 

alternate  contractions  and  expansions  which  spoiled 
it  as  a  measure  of  value.  It  was  never  able  to  stand 
the  shock  of  the  commercial  crises  which  it  power- 
fully contributed  to  bring  on.  Money  is  an  imple- 
ment, and  a  costly  implement,  and  the  functions  it 
has  to  perform  cannot  be  performed  by  cheap,  penny- 
wise,  pound  -  foolish  substitutes.  Just  as  no  man 
wants  in  his  factory  a  crazy,  second-hand  engine, 
whose  boiler  is  liable  to  burst,  and  whose  gear  gets 
out  of  repair,  because  it  is  cheaper,  but  prefers  to  get 
a  good  machine  and  pay  for  it,  so  wise  and  patriotic 
men  are  willing  to  be  at  the  expense  of  getting  a 
good,  a  national,  a  respectable,  an  everywhere  cur- 
rent, and,  if  it  must  be  paper,  an  instantly  converti- 
ble money.  Such  a  money  the  country  at  least  ex- 
pects to  have  under  the  new  national  banking  law, 
whose  origin  and  principal  features  we  shall  examine 
after  casting  a  glance  at  the  mint. 

Two  kinds  of  paper  and  two  kinds  of  coin  had 
preceded  the  issue  of  the  bills  of  the  first  United 
States  Bank.  The  first  kind  of  paper  were  bills  of 
credit  issued  first  by  the  individual  colonies,  and  then 
by  the  confederated  continent,  always  inconvertible, 
and  consequently  always  depreciating;  the  second 
kind  of  paper  were  the  bills  of  the  three  State  banks 
at  Philadelphia,  New  York,  and  Boston,  convertible, 
and  so  far  forth  excellent ;  but  circulating  mainly  in 
their  respective  cities  only.  The  first  kind  of  coin 
were  the  pine-tree  silver-pieces  of  Massachusetts, 
minted  two  hundred  years  ago,  and  the  copper  pieces 
struck  under  State  authority  about  the  time  of  the 
adoption  of  the  constitution  of  the  United  States, 
simultaneously  in  Vermont,  Connecticut,  New  Jer- 


ON  CURRENCY  IN  THE  UNITED  STATES.    297 

sey,  and  Massachusetts ;  the  other  kind  of  coin  being 
the  copper  cents  nationalized  by  the  old  Congress, 
and  which  came  into  circulation  while  the  conven- 
tion was  sitting  which  framed  the  constitution  under 
which  we  live. 

As  soon  as  the  new  government  had  got  fairly 
under  way,  the  more  pressing  questions  of  the  tariff, 
the  national  bank,  the  organization  of  the  depart- 
ments, being  disposed  of,  the  national  mint  was  put 
into  practical  operation  at  Philadelphia.  The  laws 
relating  to  the  mint  were  enacted  during  the  session 
of  1792,  and  the  first  Federal  coins  of  gold  and  silver  I 
were  struck  in  January,  1795.  It  is  to  Jefferson  that 
the  country  is  indebted  for  the  decimal  scale  of  cur- 
rency, so  superior  in  convenience  to  all  other  mone- 
tary subdivisions.  He  had  proposed  a  matured  plan 
for  the  coinage,  with  the  dollar  for  the  unit,  and  the 
decimal  subdivisions  of  dimes,  cents,  and  mills,  and 
the  decimal  multiple  of  the  dollar,  the  eagle,  while 
he  was  a  member  of  the  old  Congress  in  1785 ;  and 
the  Congress  had  adopted  his  plan  the  following 
year,  and,  as  has  been  said,  some  copper  cents  were 
minted  on  the  Federal  standard  ;  but  nothing  more 
was  done  till  1792,  when  the  new  Congress  reaffirmed 
the  resolutions  of  the  old,  readopted  Jefferson's  de- 
nominations, and  put  our  existing  mint  into  working 
order.  There  was  a  curious  debate  in  Congress  at 
the  time  as  to  the  devices  which  the  coins  should 
bear.  As  the  bill  came  from  the  Senate,  where  it 
originated,  the  gold  and  silver  pieces  were  to  have  on 
one  side  the  figure  of  the  eagle,  which  the  Continen- 
tal Congress  long  before  had  adopted  as  the  national 
emblem,  and  near  this,  the  legend  "  United  States 


298  ELEMENTS  OF  POLITICAL  ECONOMY. 

of  America."  This  was  for  the  obverse  of  the  coin, 
and  so  far  nobody  had  any  objection.  For  the  re- 
verse, the  bill  proposed  that,  in  accordance  with  the 
usages  of  all  nations  from  the  time  of  the  earliest 
known  coinage,  the  impression  or  representation  of 
the  head  of  the  President  of  the  United  States  for 
the  time  being,  together  with  his  name,  order  of  suc- 
cession in  the  presidency,  and  the  date  of  the  coin- 
age, should  be  stamped.  This  was  strongly  objected 
to  in  the  House,  as  savoring  of  monarchy.  The 
President's  head  on  the  coin  was  deemed  by  some  a 
dangerous  thing  for  the  republic,  and  the  proposal 
led  to  a  sarcastic  and  even  acrimonious  debate,  and 
was  at  length  defeated  in  the  House  by  a  vote  of 
twenty-six  to  twenty-two,  in  which  the  Senate  was 
afterwards  obliged  to  concur,  and  a  proposition  made 
by  Key  of  Maryland  was  carried,  to  substitute  a  fig- 
ure of  Liberty  instead  of  the  obnoxious  head  of  the 
President ;  but  under  precisely  what  sort  of  a  figure 
to  represent  Liberty  was  then  the  difficulty,  and  at  the 
next  session  Elias  Boudinot  of  New  Jersey,  after- 
wards the  director  of  the  mint,  endeavored  to  get 
substituted  for  the  emblematic  figure  of  Liberty  the 
head  of  Columbus,  but  in  vain  ;  the  Republican  party 
was  bound  that  the  figure  of  Liberty  and  no  other 
should  go  on  to  the  coins,  and  it  went,  and  we  have 
here  the  history  of  that  daintily  seated  lady,  whose 
pretty  face  we  used  to  see  familiarly  enough  before 
the  war,  and  whose  acquaintance  we  hope  to  resume 
in  the  good  time  coming. 

It  may  be  asked  how  we  came  to  have  the  dollar 
as  the  unit  of  our  monetary  system.  The  word  dol- 
lar is  derived  from  a  German  word   which   means 


ON  CURRENCY  IN  THE  UNITED  STATES.    299 

valley,  and  was  first  applied  to  coins  in  consequence 
of  this  circumstance  :  in  the  mining  region  of  Bohe- 
mia, at  a  place  called  Joachimsthal,  (Joachim's  val- 
ley,) silver-pieces  of  one  ounce  weight  were  coined 
and  came  into  circulation  about  1520  as  Joachims- 
thaler,  and  then  for  shortness  thaler ;  this  became 
dalera  in  Spanish,  and  in  English  dollar.  The  thaler 
is  still  the  German  money  of  account,  and  the  Span- 
ish milled  dollar  became  so  famous  in  the  world  of 
commerce,  and  so  familiar  to  our  fathers  in  their 
dealings  with  the  West  Indies  and  the  Spanish 
American  colonies,  that  our  Congress  adopted  it  as 
the  best  known  and  most  convenient  unit  of  money. 
The  word  dime  is  a  corruption  of  the  Latin  decern^ 
ten  ;  cent  a  contraction  of  the  Latin  centum,  hun- 
dred ;  and  mill  a  contraction  of  the  Latin  mille,  thou- 
sand ;  so  that  our  denominations  are  philosophical 
as  well  as  convenient,  each  one  in  order  being  and 
being  designated  a  tenth  part  of  the  one  above. 

The  mint  of  the  United  States  is  one  of  the  most 
interesting  institutions  in  the  country.  It  was  estab- 
lished at  Philadelphia  in  1792.  While  it  was  still 
doubtful  where  the  ultimate  seat  of  the  national  gov- 
ernment would  be  placed,  the  citizens  of  that  beau- 
tiful city  were  strongly  in  hopes  of  being  able  to 
persuade  Congress  permanently  to  abide  in  their 
town,  in  which  the  old  continental  body  had  first 
met,  in  which  independence  had  been  declared,  and 
which,  more  than  any  other,  was  popularly  regarded 
as  the  headquarters  of  the  national  Union.  A  no- 
table instance  of  log-rolling  legislation,  the  first  in 
our  history,  transferred  the  capital  of  the  country  to 
the  banks  of  the  Potomac,  but  the  good  people  of  the 


300  ELEMENTS  OF  POLITICAL  ECONOMY. 

Quaker  City  have  nevertheless  always  retained  the 
mint,  as  a  memorial  of  their  earlier  position  in  the 
history  of  the  government. 

By  the  law  establishing  the  mint,  the  chief  officer 
was  to  be  styled  a  director;  and  the  ingenious  David 
Rittenhouse,  a  self-taught  mathematician,  who  had 
run  several  years  before,  by  the  help  of  instruments 
all  of  his  own  construction,  the  most  difficult  part  of 
Mason  and  Dixon's  line,  was  shortly  after  appointed 
to  this  post.  The  act  stipulated  that  all  bullion 
brought  to  the  mint  should  be  coined  gratuitously ; 
but  when  coin  was  delivered  in  exchange  for  bullion 
on  the  spot,  one  half  of  one  per  cent,  was  to  be 
charged  as  seigniorage.  The  coins  were  to  be  the 
eagle,  the  half-eagle  and  the  quarter-eagle  in  gold  ; 
the  dollar,  half-dollar,  quarter-dollar,  dime,  and  half- 
dime  in  silver ;  the  cent  and  half-cent  in  copper. 
The  weight  of  the  eagle  was  to  be  270  grains  troy, 
alloyed  according  to  the  English  standard,  one  part 
in  tw^elve ;  and  the  dollar  was  to  weigh  416  grains, 
alloyed  one  part  in  nine  and  nine-tenths.  The  sub- 
divisions of  these  coins,  gold  and  silver,  were  to  be 
in  all  respects  proportional  to  their  units.  At  that 
time,  in  France  and  in  Europe  generally,  the  current 
relative  value  of  gold  and  silver  was  considered  one 
to  fifteen,  and  the  act  of  Congress  established  that 
as  the  ratio  of  the  value  of  the  two  metals  to  be 
maintained  at  the  mint;  but,  from  this  clause  of  the 
law,  there  followed  important  consequences,  which 
were  not  foreseen,  since  that  was  not,  at  least  in 
America,  the  true  ratio  of  their  value  at  that  time, 
and  being  a  decided  undervaluation  of  gold,  the  gold 
coinage  did  not  come  into  any  circulation.     It  was 


ON  CURRENCY  IN  THE  UNITED  STATES.    301 

really  worth  by  the  ounce  more  than  fifteen  ounces 
of  silver  ;  but,  as  the  mint  only  reckoned  it  equal  to 
fifteen  ounces  of  silver,  it  was  more  valuable  out  of 
the  circulation  than  in  it,  and  it  was  therefore  always 
exported  in  preference  to  silver,  in  payment  of  for- 
eign balances,  especially  after  France  and  the  rest  of 
Europe  had  changed  the  relative  legal  value  to  one 
to  fifteen  and  one  half.  After  that,  an  ounce  of  gold, 
estimated  in  silver,  was  worth  three  and  one  third  per 
cent,  more  abroad  than  at  home,  and,  of  course,  under 
the  circumstances,  it  would  not  circulate  in  the  home 
currency.  The  cheaper  money  will  push  out  of  cir- 
culation the  dearer  the  world  over.  From  the  organi- 
zation of  the  mint  till  1817,  over  five  millions  and  a 
half  dollars  in  gold-pieces  were  coined,  and  very  little 
indeed  of  it  came  into  permanent  circulation,  for  the 
simple  reason  that  it  was  really  worth  more  than  it 
was  counted  to  be  worth  by  the  regulations  of  the 
currency.  It  would,  therefore,  pay  to  melt  it  up,  be- 
cause it  was  worth  more  as  bullion  than  as  coin. 

This  state  of  things  continued,  the  silver  circulat- 
ing freely  but  the  gold  scarcely  circulating  at  all,  till 
the  attention  of  Congress  was  called  to  the  subject, 
and  a  law  passed  substantially  rating  gold  in  relation 
to  silver  at  one  to  sixteen.  The  weight  of  the  eagle 
was  reduced  to  258  grains  fi:om  270,  and  the  alloy 
increased  to  one  part  in  ten  from  one  part  in  twelve. 
This  increased  at  one  jump  the  legal  valuation  of 
gold  6fcfo  per  cent,  as  compared  with  silver,  which 
remained  as  before.  As  the  former  ratio  was  a  de- 
cided undervaluation  of  gold,  so  the  law  of  1834  as 
decidedly  overvalued  it ;  and  the  working  of  a  beau- 
tiful natural  law  became  immediately  apparent,  by 


302  ELEMENTS  OF  POLITICAL  ECONOMY. 

which  the  current  of  the  metals  was  reversed,  silver 
now  passing  in  preference  to  Europe  to  liquidate  the 
balances  of  trade,  and  gold  coming  from  Europe  to 
the  United  States,  where  it  was  about  three  and  one 
quarter  per  cent,  dearer  than  in  Europe,  while  silver 
was  about  three  and  one  quarter  per  cent,  dearer  in 
Europe  than  in  the  United  States.  The  metals  go 
where  they  have  the  most  consideration  in  exchange. 
Between  1834  and  1S37  silver  was  slipping  out  of 
our  cun-ency,  and  gold  as  decidedly  coming  in.  The 
law  of  Congress  went  too  far,  and  inverted  the  evil 
it  was  designed  to  correct.  It  endeavored  to  hit  the 
true  natural  relative  value  of  the  two  metals  for  the 
time  being,  but  shot  as  much  beyond  the  mark  as 
the  previous  law  fell  short.  Our  silver  coins  began 
to  be  exported  freely  in  preference  to  gold  in  pay- 
ment of  balances,  but  the  tendency  had  not  become 
very  marked  when  were  introduced  the  changes  of 
1837. 

Dr.  Robert  M.  Patterson,  who  was  the  director  of 
the  mint  from  1835  to  1851,  under  whose  direction 
the  present  admirably  improved  machinery  of  the 
mints  was  introduced,  and  who  thereby  developed 
their  capacity  from  a  coinage  of  $5,000,000  to  $63,- 
000,000  per  annum,  drew  up  a  new  code  of  mint- 
laws,  which  was  enacted  by  Congress  in  January, 
1837,  by  which  the  previous  complicated  legislation 
was  all  superseded,  and  on  which  the  mint  has  been 
substantially  administered  ever  since.  In  the  first 
place,  the  French  standard  of  fineness  of  nine  tenths 
for  both  gold  and  silver  was  adopted,  that  is  to  say, 
one  part  alloy  in  a  whole  of  ten  parts.  Since  its 
adoption  by  us  from  the  French,  this  decimal  stand- 


ON  CURRENCY  IN  THE  UNITED  STATES.  203 

ard  of  fineness  has  been  adopted  also  by  several  other 
nations  for  their  new  coins,  and  thus  some  important 
steps  have  already  been  taken  towards  a  most  de- 
sirable end  which  is  yet  to  be  realized  in  the  future, 
a  universal  currency  for  commerce.  If  the  money  of 
the  leading  commercial  nations  only  contained  the 
same  quantity  of  alloy,  and  especially  if  the  coins 
could  be  brought  into  decimal  or  other  easy  numeri- 
cal relation  to  each  other,  as  the  French  franc,  the 
American  dollar,  and  the  English  sovereign  already 
are,  this  money  would  be  a  sort  of  universal  money, 
capable  of  paying  the  balances  of  commerce  any- 
where, without  the  present  trouble  and  expense  of 
melting  up  and  recoinage.  This  change  in  the  stand- 
ard of  fineness  necessitated  a  change  in  the  weight 
of  the  silver  coins,  if  the  established  relation  of  one 
to  sixteen  was  to  be  maintained.  Accordingly  the 
weight  of  the  silver  dollar  was  reduced  from  416 
grains  to  412|^,  and  the  lesser  silver  pieces  in  propor- 
tion. The  weight  of  the  dollar  has  remained  at  that 
figure  ever  since,  but  the  smaller  silver  coins  have 
been,  as  we  shall  see,  still  further  reduced  in  weight, 
and  the  refusal  of  the  dollar- piece  to  circulate  has 
been  another  good  illustration  for  ten  or  more  years 
of  the  universal  law  that  the  cheaper  money  drives 
our  the  dearer. 

At  different  times  since  1837  new  denominations 
of  coins  have  been  added  to  our  national  series  ;  of 
gold,  the  double-eagle,  the  three-dollar,  and  the  one- 
dollar  piece;  of  silver,  only  the  three-cent  piece,  which 
has  never  been  popular,  and  will  be  superseded  by 
the  new  three-cent  copper  piece.  In  1853  very  inter- 
esting alterations  were  made  in  the  character  of  our 


304  ELEMENTS  OF  POLITICAL  ECONOMY. 

silver  coins  ;  up  to  that  date  the  laws  made  both  the 
gold  and  silver  money  a  legal  tender  to  any  amount; 
and  it  was  consequently  optional  with  the  debtor  to 
pay  in  the  cheaper  metal,  which  ever  it  might  be  ; 
and  as  experience  was  proving  that  the  relative  value 
of  the  two  was  not  constant  but  variable,  and  that 
the  legally  established  ratio  of  one  to  sixteen  was  de- 
pleting the  currency  of  silver,  it  was  then  determined 
to  make  gold  alone  the  legal  tender,  except  to  the 
extent  of  $5 ;  to  cease  coining  silver  for  individuals, 
and  only  coin  on  government  account  such  sums  as 
seemed  to  be  in  demand  for  purposes  of  change;  and 
to  reduce  the  weight  of  the  half-dollar  and  its  sub- 
divisions so  that  their  nominal  value  should  be  con- 
siderably above  their  real  value  as  compared  with 
the  silver  dollar,  and  thus  their  exportation  be  pre- 
vented. Accordingly  the  weight  of  the  half-dollar 
has  been  reduced  from  206^  grains  to  192  grains,  and 
of  the  smaller  coins  in  proportion.  Government  buys 
silver  bullion  at  the  market  price,  which  has  only 
varied  for  several  years  from  $1.21  to  $1.22|  per 
ounce,  and  coins  this  into  $1.25  of  the  smaller  silver- 
pieces,  thus  charging  a  seigniorage  of  about  three  per 
cent.  Consequently  the  half-dollars  and  lesser  silver 
coins  are  overvalued  in  our  currency,  and  a  nominal 
dollar's  worth  of  them  worth  1-t^Q  per  cent,  less  than 
a  silver  dollar.  The  result  of  these  measures  has 
been  to  establish  gold  as  the  real  currency  of  the 
country,  and  to  make  silver  entirely  subsidiary  to 
that.  The  current  value  of  the  silver  coin  in  the 
currency  is  sufficiently  above  its  market  price  as 
bullion  to  prevent  the  exportation  of  the  coins,  and 
this  explains  the  discount  to  which  our  silver  has 


ON  CURRENCY  IN  THE  UNITED  STATES.     305 

been  subjected  in  Canada  for  the  past  three  years. 
Instead  of  weighing  412^  grains,  a  dollar  in  small 
coin  weighs  only  384  grains,  and  therefore  the  Cana- 
dians with  good  reason  have  vehemently  rejected 
these  pieces  at  their  nominal  value.  Their  actual 
and  proper  discount  as  compared,  with  the  silver  dol- 
lar is  7/o'o  per  cent.  It  ought  to  be  added  that  the 
gold  dollar  is  now  our  unit  of  value,  and  the  director 
of  the  mint  has  repeatedly  asked  Congress  to  bring 
the  silver  dollar  out  of  its  anomalous  into  a  normal 
condition. 

It  now  only  remains  to  characterize  the  new  na- 
tional bank  system,  in  its  origin,  structure,  benefits, 
and  dangers. 

When  Secretary  Chase  assumed  the  Treasury  De- 
partment in  the  spring  of  1861,  the  state  of  the  coun- 
try, and,  of  consequence,  the  state  of  the  finances, 
were  appalling.  Mr.  Buchanan's  administration  had 
just  been  trying  to  borrow  a  few  millions  of  dollars 
of  the  people,  and  had  only  succeeded  in  securing  a 
very  small  sum,  and  that  at  the  enormous  rate  of 
twelve  per  cent,  interest.  The  clouds  of  war  which 
had  been  gathering  black  and  sullen  all  the  winter, 
soon  broke  in  wrathful  peals  over  the  head  of  the 
new  administration.  The  country  must  be  defended, 
as  w^ell  as  the  ordinary  expenses  of  the  government 
met ;  an  army  must  be  raised,  equipped,  put  into  the 
field,  and  paid.  We  do  not  propose  to  follow  the 
Secretary  in  his  general  financial  embarrassments, 
expedients,  and  resources;  but  it  is  needful  to  our 
present  purpose  to  say  that,  owing  to  the  unexpected 
delays  and  disasters  of  the  war,  and  to  the  conse- 
quent want  of  confidence  in  the  public  mind,  he 

20 


60b  ELEMENTS  OF  POLITICAL  ECONOMY. 

found  it  extremely  difficult  to  borrow  the  sums  ne- 
cessary to  be  had  in  order  to  meet  the  expenditures 
of  the  government ;  and  that  in  his  first  annual 
report  to  Congress,  in  December,  1861,  he  recom- 
mended, principally  for  the  sake  of  facilitating  the 
negotiation  of  loans,  the  organization  of  banking 
associations,  \v;hose  circulation  should  consist  only 
of  notes,  uniform  in  character,  furnished  by  the  gov- 
ernment, and  secured  as  to  convertibility  into  coin 
by  United  States  bonds  deposited  in  the  treasury. 
It  is  clear  that  if  such  associations  should  be  formed, 
it  would  make  a  market  for  the  national  bonds  to 
the  extent  in  which  they  should  invest  their  capital 
stock  in  them  as  security  for  their  circulation.  Above 
all  things,  at  that  time  the  United  States  wanted  to 
borrow  money.  It  must  borrow  or  perish ;  and 
therefore  a  national  banking  system,  based  for  secu- 
rity on  the  national  debt,  would  open  a  market  for 
some  hundreds  of  millions  of  the  evidences  of  that 
debt,  and  put  a  corresponding  sum  of  immediately 
available  funds  into  the  hands  of  the  government. 

This  proposal  of  the  Secretary,  involving,  as  it  did, 
the  winding  up  of  the  State  banks  as  such,  found  at 
first  but  little  favor  in  Congress  or  among  the  people. 
The  banking  interests  of  the  eastern  and  middle 
States,  particularly  of  the  State  of  New  York,  from 
whose  State  bank  system  the  idea  was  mainly  and 
by  acknowledgment  borrowed,  were  especially  hostile 
to  the  scheme.  In  his  second  annual  report,  in 
December,  1862,  the  Secretary  iterated  his  recom- 
mendation, and  enforced  it  at  length  by  arguments 
drawn  from  the  necessity  of  effecting  immediately 
more  extensive  loans,  from  the  character  of  the  cur- 


ox  CURRENCY  IN  THE  UNITED  STATES.    307 

rency  for  soundness  and  uniformity  thus  furnished  to 
the  people,  from  the  convenient  agencies  which  such 
banks  would  furnish  for  the  deposit  of  public  moneys, 
and  from  the  firm  anchorage  which  such  a  system 
would  give  to  the  union  of  the  States.  These  argu- 
ments, which  found  a  response,  especially  emphatic 
from  the  Western  States,  coupled  with  the  assurance 
of  the  Secretary,  that,  if  Congress  should  concur  in 
his  views,  though  conscious  of  the  great  difficulty 
which  vast,  sudden,  and  protracted  expenditures  im- 
posed on  him,  he  thought  he  should  still  be  able  to 
maintain  the  public  credit  and  provide  for  the  public 
wants,  induced  Congress  to  frame  and  pass  "  An  act 
to  provide  a  national  currency  secured  by  a  pledge 
of  United  States  stocks,  and  to  provide  for  the  circu- 
lation and  redemption  thereof."  The  act  was  ap- 
proved by  the  President  February  25,  1863. 

The  fundamental  idea  of  the  whole  system  is  the 
combination  of  national  credit  with  private  capital 
in  the  issue  and  redemption  of  money.  This  idea 
was  first  realized  in  the  Bank  of  England.  The 
bank  is  an  association  of  individuals  incorporated 
under  the  style  of  the  "  Governor  and  Company  of 
the  Bank  of  England;"  and  at  its  organization  in 
1694,  it  invested  its  whole  capital  stock  of  $6,000,000 
(reducing  pounds  to  dollars)  in  government  bonds ; 
and  at  various  times  since  it  has  bought  up  more  of 
these  bonds,  until  now  the  British  government  owes 
the  bank  $55,075,000.  This  dfebt  is  the  basis  of  the 
operations  of  the  bank.  It  is  allowed  to  issue  notes 
to  the  full  amount  of  this  permanent  debt,  and  to 
the  extent  of  $14,925,000  more  on  other  national 
securities,  less  permanent  in  their  character ;  but  for 


808  ELEMENTS  OF  POLITICAL  ECONOMY. 

every  bank-note  beyond  this  aggregate  of  $70,000,- 
000,  based  on  the  national  credit,  there  must  be 
pound  for  pound  gold  and  silver  in  the  vaults  of  the 
bank.  The  bank-notq  circulation,  therefore,  is  based 
first  on  the  credit  of  the  association  of  individuals 
called  the  Bank  of  England,  which  promises  to  re- 
deem every  note  in  specie  on  presentation,  but  rests 
back  for  its  ultimate  security  on  the  national  faith 
embodied  in  the  bonds  in  which  the  capital  stock 
of  the  bank  is  invested.  Very  similar  is  our  new 
system.  Every  bank  organized  under  it  invests  its 
own  capital  stock  in  the  bonds  of  the  United  States, 
bearing  interest.  These  bonds  are  transferred  to  an 
officer  of  the  treasury,  called  the  comptroller,  at 
Washington,  who  holds  them  as  security  for  the 
redemption  of  the  bills  of  such  bank^but  who  pays 
the  interest  on  them  to  the  bank  itself,  so  long  as 
the  bank  redeems  its  bills  promptly  and  violates  no 
provisions  of  the  organic  banking  law.  Ninety  per 
cent,  of  the  amount  of  such  bonds  thus  deposited 
with  the  comptroller,  provided  the  bonds  be  esti- 
mated at  par.valuQ  and  bear  interest  at  a  rate  not 
less  than  five  per  cent.,  is  then  furnished  by  the 
treasurer  to  the  bank  in  circulating  notes,  engraved 
and  registered  by  the  United  States ;  unless  the  cap- 
ital stock  of  the  bank  be  more  than  $500,000  and 
less  than  $1,000,000,  in  which  case  only  eighty  per 
cent,  of  the  capital  is  furnished  in  notes ;  and  if  the 
capital  be  between  $1,000,000  and  $3,000,000,  only 
seventy-five  per  cent.;  and  over  $3,000,000,  sixty  per 
cent.  These  notes  thus  received  by  the  banks,  they 
issue  to  the  people  in  ordinary  loans  and  payments, 
and  they  are  required  by  the  law  to  keep  on  hand 


ON  CUREENCY  IN  THE  UNITED  STATES.    309 

at  all  times  twenty- five  per  cent,  of  their  aggregate 
average  circulation  and  deposits  in  lawful  money  of 
the  United  States,  with  which  to  redeem  their  notes 
on  presentation.  Thus  the  convertibility  of  the 
notes  is  dependent  first  on  the  solvency  of  the  as- 
sociation, and,  if  that  fails  to  redeem  them,  they 
are  speedily  redeemable,  after  certain  formalities  are 
gone  through  with,  at  the  treasury  of  the  United 
States;  and  so  many  of  the  bonds  belonging  to 
such  bank,  deposited  wuth  the  comptroller  of  the 
currency  as  security  for  the  redemption  of  the  notes, 
are  then  to  be  sold  as  shall  reimburse  the  United 
States  for  such  redemption  ;  so  that  it  is  almost  im- 
possible under  the  law  that  the  bill-holders  of  any 
national  bank  can  ever  suffer  any  loss.  The  United 
States  holds  the  capital  of  the  bank  in  its  own 
hands,  and  is  thus  enabled  to  guarantee  the  con- 
vertibility of  the  bills.  At  the  same  time  the  system 
secures  the  manifold  advantages  of  private  capital, 
private  enterprise,  and  personal  sagacity  and  integ- 
rity, in  the  matter  of  loaning  money,  securing  depos- 
its, and  general  management  of  the  banks. 

The  superiority  in  every  respect  of  this  scheme  of 
banking  to  the  fast  and  loose  system  which  has  pre- 
vailed in  this  country  so  long,  is  very  apparent.  In 
the  first  place,  perfect  publicity  of  the  affairs  of 
every  bank  is  provided  for  in  the  organic  law,  and 
cannot  be  evaded.  Every  bank  in  the  principal 
cities  must  publish  a  statement,  under  oath,  at  the 
beginning  of  every  month,  of  its  exact  condition, 
and  forward  it  to  the  comptroller;  and  the  other 
banks  must  do  the  same  every  quarter,  and  the 
comptroller  is  to  publish  abstracts  of  these  reports 


310  ELEMENTS  OF  POLITICAL  ECONOMY. 

every  quarter ;  so  that  everybody  can  know  the  state 
of  each  bank  in  particular,  as  well  as  the  state  of 
the  whole  circulation.  In  the  second  place,  the 
whole  amount  of  the  circulation  cannot  be  increased 
at  the  will  of  the  banks  or  the  will  of  the  comp- 
troller, or  in  any  other  way  except  by  an  act  of 
Congress  authorizing  such  increase ;  so  that  the  sys- 
tem is  not  so  liable  to  those  sudden  contractions 
and  expansions  which  have  been  the  bane  of  our 
paper  money  hitherto.  In  the  third  place,  the  bills 
will  be  uniform  in  value  all  over  the  country,  and 
debts  can  be  paid  by  them  through  the  post-office 
or  otherwise,  without  the  mediation  of  any  bank  or 
the  payment  of  exchanges.  In  the  fourth  place,  be- 
sides the  absolute  security  of  ultimate  redemption, 
the  ratio  of  lawful  money  actually  on  hand  to  the 
aggregate  circulation  is  much  higher  than  has  hith- 
erto prevailed  in  practice  throughout  the  country. 
Add  to  these  reasons  this  other,  that  the  homogene- 
ousness  of  the  money  circulating  among  them,  in 
connection  with  a  common  creditorship  towards  the 
United  States  Government,  is  an  additional  bond 
binding  the  States  and  the  people  together,  and 
tending  powerfully  to  neutralize  the  centrifugal 
forces  which  are  always  at  work  in  large  societies 
and  governments.  But  we  shall  get  an  idea  too 
favorable  to  the  new  national  banking  system,  un- 
less we  look  also  at 

THE    DANGERS. 

The  money  which  these  banks  are  to  circulate  is, 
after  all,  nothing  but  credit  money,  and  will  be  liable 
in  some  degree  to  the  disorders  which  are  inseparable 


ON  CUKRENCY  IN  THE  UNITED  STATES.    311 

from  every  form  of  credit.  Credit  is  not  payment, 
but  a  promise  to  pay.  The  promise  may  be  good, 
it  may  be  sm-e  to  be  fulfilled;  but  it  is  not,  and  never 
can  be  made,  the  same  thing  as  fulfilment.  These 
bills  bear  upon  their  face  the  acknowledgment  that 
they  are  promises  to  pay,  and  not  the  pay  itself;  and 
men  are  so  constituted,  and  society  is  so  delicately 
organized,  that  times  are  liable  to  come  when  men 
shall  have  a  general  distrust  of  mere  promises,  and 
shall  desire  to  see  them  changed  into  fulfilment.  If 
a  panic  should  ever  arise  in  regard  to  these  notes, 
and  a  general*  desire  be  manifested  on  the  part  of 
the  holders  to  convert  them  into  cash,  it  is  evident 
that  many  of  the  banks  would  be  obliged  to  suspend 
specie  payments,  since  they  are  only  required  to 
hold  twenty-five  per  cent,  of  their  circulation  and 
deposits  in  cash,  and  this  ratio,  as  a  general  thing, 
is  not  likely  to  be  exceeded.  It  is  true  that  their 
notes  cannot  all  come  back  at  once  for  redemption, 
nor  indeed  any  very  considerable  proportion  of  them, 
since,  unlike  the  circulation  of  the  State  banks,  they 
will  pass  freely  beyond  the  boundaries  of  States  and 
sections,  and  become  necessarily  very  widely  dif- 
fused ;  yet  general  confidence  is  a  thing  so  sensitive, 
and  credit  money  is  in  its  nature  such,  that  an  abso- 
lute freedom  from  panics  and  from  supensions  can- 
not rationally  be  predicted.  They  are  liable  to 
come :  it  will  be  strange  if  they  do  not  come. 

But  the  most  imminent  danger  that  threatens  this 
system  is  this :  that  Congress  will  unwisely  increase 
the  amount  already  authorized  to  be  issued  before 
the  system  gets  fairly  settled  and  the  resumption  of 
specie  payments  takes  place.     This  is  every  way  to 


812  ELEMENTS  OF  POLITICAL  ECONOMY. 

be  deprecated.  The  system  will  be  sound  and  whole- 
some just  in  proportion  as  Congress  refuses  to  add 
to  the  present  amount  of  $300,000,0000.  When  the 
war  broke  out,  the  whole  paper  circulation  of  the 
country,  north  and  south,  was  only  §202,000,000; 
and  in  the  loyal  States,  $150,000,000 ;  and  on  the 
first  of  January,  1862,  in  the  loyal  States,  only 
$130,000,000,  according  to  the  authority  of  Secre- 
tary Chase.  Now,  we  do  not  want  an  exclusively 
paper  currency.  We  want  a  broad  substratum  of 
gold  and  silver  underneath  it  to  support  it,  control 
it,  and  redeem  it.  There  ought  to  he  at  least  as 
much  of  gold  and  silver  in  the  currency  and  in  the 
banks  as  of  paper  money.  The  English  have  more. 
That  is  the  grand  reason  why  the  British  currency  is 
so  sound  and  excellent;  not  that  a  part  of  it  is  credit 
money,  but  that  the  greater  part  of  it  is  gold  and 
silver.  If  Congress  will  only  hold  firm,  and  allow 
those  channels  of  circulation  which  $300,000,000  of 
paper  cannot  fill  to  be  filled  up  with  gold  and  silver 
money,  as  they  will  be  in  accordance  with  natural 
laws,  without  the  necessity  of  a  syllable  of  legisla- 
tion, then  the  banking  system  w^Ul  stand  firm,  then 
the  paper  will  be  equal  with  gold,  then  we  shall 
have  a  circulation  of  perhaps  $630,000,000  of  good 
money,  redemption  of  the  notes  will  rarely  be  called 
for,  and  will  be  perfectly  easy  when  it  is  called  for, 
and  such  a  thing  as  a  panic  attacking  the  currency 
will  be  rarely  or  never  witnessed.  Let  no  man  say 
that  it  will  cost  too  much  to  maintain  $350,000,000 
of  metallic  money.  The  Director  of  the  United 
States  Mint,  in  his  Report  for  1862,  tells  us,  as  the 
result  of  careful  observations  and  experiments  at  the 


ON  CURRENCY  IN  THE  UNITED  STATES. 


313 


mint,  that  the  average  abrasion  of  all  our  gold  and 
silver  coins  in  times  of  their  circulation  is  24^0^  P^^^ 
annum.  To  maintain,  then,  a  metallic  circulation 
of  $350,000,000  would  cost  $145,833  a  year;  we 
doubt  whether  as  much  paper  money  can  be  kept 
good  for  that  sum,  considering  the  losses  from  acci- 
dent, from  counterfeiting,  and  similar  items.  There 
is  no  credit  in  gold  and  silver  money.  It  promises 
nothing.  It  represents  nothing.  It  stands  in  its 
own  right  of  value  exactly  as  any  other  commod- 
ity, as  is  shown  by  the  fact  that  it  is  worth  scarcely 
more  as  coin  than  as  bullion.  The  most  that  can 
be  said  of  any  paper  money  is,  that  it  approximates 
in  value  and  steadiness  to  a  gold  and  silver  money. 
The  closer  the  approximation,  the  better  the  paper. 
Considering  the  likelihood  that  Congress  will  be 
urged  to  allow  of  more  paper  money,  and  the  like- 
lihood that  they  will  yield  to  such  urging,  and  the 
certainty  that  such  action  will  postpone  the  day  of 
resuming  specie  payments,  and  the  probability  that 
the  whole  system  will  be  more  or  less  endangered 
thereby,  we  cannot  predict  with  any  confidence  the 
high  success  of  the  system.  It  is  perhaps  rather  to 
be  hoped  for  than  expected. 


Library. 


314  ELEMENTS  OF  POLITICAL  ECONOMY. 


CHAPTER    XII. 

ON  CREDIT. 

Political  Economy  is  the  science  of  exchanges; 
but  there  are  certain  exchanges  which  have  this 
peculiarity,  that  the  return  service  is  not  rendered 
immediately,  but  is  impliedly  or  expressly  promised 
to  be  rendered  in  the  future.  This  peculiarity  is 
important  to  be  considered,  and  gives  rise  to  all 
those  phenomena  which  pass  under  the  general 
name  of  Credit.  The  commercial  use  of  the  term 
credit  is  loose  and  various,  denoting  sometimes  the 
reputation  of  a  person  for  solvency,  as  when  it  is 
said,  "  So  and  So  has  good  credit ; "  and  sometimes 
denoting  a  general  state  of  the  public  mind,  in 
which  use  it  is  synonymous  with  confidence,  as 
when  it  is  said,  "  There  is  no  credit  in  a  time  of 
commercial  crisis;"  and  sometimes  denoting  also 
the  paper  evidences  of  an  obligation  resting  on 
some  party  to  render  a  return  service  for  some  ser- 
vice already  received.  Credit,  in  general,  may  be 
defined  as  an  exchange  in  which  the  return  service 
is  delayed,  and  which  usually  gives  birth  to  a  writ- 
ten evidence  that  such  service  is  due.  In  order  that 
this  form  of  exchanges'  may  be  common,  it  is  of 
course  needful  that  there  should  be  a  general  confi- 
dence in  tlie  public  mind;  in  other  words,  a  general 
expectation  that  such  debts  will  be  promptly  paid. 


ON  CREDIT.  315 

As  indicating  a  common  honor  and  financial  ability 
among  business  men,  and  as  facilitating  the  produc- 
tion of  services  of  all  sorts,  this  state  of  general 
confidence  is  so  desirable  in  the  sphere  of  exchange 
that  great  pains  should  be  taken  that  nothing  occur 
to  destroy  it; — the  destruction  of  confidence  and 
credit  being  usually  caused  by  the  undue  extension 
of  the  one,  and  the  excessive  multiplication  of  the 
evidences  of  the  other.  We  will  first  look  at  the 
principal  forms  of  credit,  and  then  at  its  advantages 
and  disadvantages. 

(1.)  Book  Accounts.  A  charge  in  a  trader's 
books  is  both  a  current  and  a  legal  evidence  that 
the  person  charged  has  received  a  certain  service, 
and  has  virtually  promised  to  render  the  sum  charged 
as  a  return  service.  This  is  the  most  common  of 
the  forms  of  credit;  and  if  the  person  charged  fails 
of  his  own  accord  to  complete  the  exchange  thus 
commenced,  the  law,  in  the  absence  of  any  proof  to 
make  the  charge  suspicious,  collects  it,  if  possible, 
and  forcibly  completes  the  exchange.  The  conven- 
ience of  this  form  of  credit  is  so  great  that  it  is  not 
likely  ever  to  be  disused ;  and  as  between  people 
who  deal  much  with  each  other  is  very  useful,  inas- 
much as  their  respective  book  accounts  are  set 
against  each  other  in  settlement,  and  only  balances 
are  required  to  be  cancelled  in  money.  It  is  for  the 
benefit  df  both  creditor  and  debtor,  however,  that 
such  credits  should  be  short  in  time,  and  such  settle- 
ments frequent,  since  thus  only  does  the  creditor 
realize  the  gains  of  the  exchange,  and  the  debtor 
keep  fair  his  mercantile  name.  If  it  be  difficult  or 
impossible  to  follow  strictly  the  excellent  financial 


816  ELEMENTS  OF  POLITICAL  ECONOMY. 

maxim,  "  Pay  as  you  go,"  the  next  best  thing  to 
that  is,  "  Go  and  pay."  The  gains  of  an  exchange 
are  lessened,  or  its  terms  become  more  onerous,  just 
in  proportion  as  delay  in  its  completion  is  experi- 
enced or  expected.  Book  accounts  are  subject  also 
to  this  disadvantage  as  compared  with  other  forms 
of  credit,  that  their  number  and  amount  as  against 
any  person  are  less  likely  to  become  publicly  known, 
and  therefore  he  is  more  likely  to  be  trusted  in  this 
•form  by  others  beyond  the  point  of  his  solvency 
and  their  safety. 

(2.)  Promissory  notes.  These  are  issued  by  indi- 
viduals, corporations,  and  nations.  They  are  usually 
on  interest ;  and  in  this  case,  if  the  principal  be  con- 
sidered secure,  and  the  interest  be  promptly  paid, 
the  element  of  time  is  comparatively  a  matter  of 
indifference,  because  the  interest  is  compensation  for 
delay,  and  is  frequently  the  motive  on  the  part  of 
the  holder  of  the  note  for  rendering  that  service  of 
which  the  note  is  evidence.  Bank-bills  are  a  form 
of  promissory  notes  not  on  interest,  and  the  bank 
issuing  them  really  borrows  of  the  people,  and  has 
the  use  of  that  amount  of  money,  without  paying 
interest,  but  offers,  as  a  kind  of  compensation  for  this 
privilege,  to  convert  its  notes  into  coin  on  demand  of 
any  holder.  It  is  this  proffered  convertibility  into  coin 
that  enables  the  promissory  notes  of  a  bank  to  circulate 
as  money,  while  the  notes  of  other  corporations  and 
individuals  equally  solid  and  solvent  do  not  circulate 
as  money.  It  must  be  borne  in  mind,  however,  that 
the  offer  to  convert  them  into  cash  does  not  essen- 
tially alter  the  nature  of  bank-notes ;  they  are  a 
form  of  credit ;  and  although   they   are   commonly 


ON  CREDIT.  317 

issued  against  another  form  of  credit,  namely,  against 
the  interest-bearing  notes  of  individuals  who  resort 
to  the  bank  for  discount,  this  only  complicates  the 
exchange  without  changing  its  nature.  It  is  an  in- 
stance of  exchanging  one  form  of  credit  for  another 
which  happens  to  have  a  greater  currency  or  validity 
than  the  first,  and  for  this  superiority  of  the  bank 
credit  the  individual  credit  pays  an  interest,  in  other 
words,  is  discounted ;  and  such  exchanges  of  one 
form  of  paper  credit  for  another,  with  or  without  a 
premium,  may  go  on  indefinitely ;  as  credit  money, 
such  paper  may  serve  as  a  medium  in  many  ex- 
changes ;  but  ultimately,  and  before  the  entire  series 
of  transactions  is  closed,  such  paper  is  to  he  ex- 
changed for  something  that  is  not  paper;  it  is 
redeemed  in  cash,  or  gives  a  claim  to  something  no 
longer  credit  which  is  in  reality  the  return  service  for 
the  original  service  rendered.  When  such  promis- 
sory note,  or  other  form  of  credit,  is  payable  to 
bearer,  it  may  run  a  devious  round,  may  play  a  part 
in  many  a  transaction ;  but  it  is  in  reality  nothing 
but  a  general  warrant  entitling  the  holder,  in  view  of 
some  original  service  of  the  claim  for  the  return  of 
which  he  has  become  in  some  manner  possessed, 
to  take  his  satisfaction  for  that  service  whenever  he 
w^ill.  It  is  like  the  land  warrants,  given  by  the 
United  States,  entitling  the  holder,  in  return  for  mili- 
tary service  rendered,  to  locate  his  acres  on  any  unoc- 
cupied national  land  within  the  national  boundaries. 
As  a  warrant,  its  function  ceases  so  soon  as  the  acres 
have  been  chosen.  Credit  passes  into  payment. 
Thus  bank-bills  are  redeemable  in  coin.  The  national 
legal-tender  notes  are  fundable  in  government  bonds, 


818  ELEMENTS  OF  POLITICAL  ECONOMY. 

another  form  of  credit,  but  whose  principal  and 
interest  are  payable  in  gold.  The  private  notes  of 
individuals  and  corporations  are  payable  in  money, 
and  if  in  credit  money,  this  itself  ends  in  something 
that  is  not  credit,  and  thus  the  circuit  of  exchange 
is  completed. 

When  the  United  States  borrows  money,  it  gives 
the  lender  a  promissory  note  on  interest  at  a  certain 
rate,  both  principal  and  interest  being  payable  at 
certain  specified  times.  These  notes  are  called  indif- 
ferently bonds,  stocks,  or  funds.  The  government 
has  issued  in  the  past  four  years  nearly  $2,500,000,- 
000  worth  of  them,  in  return  for  money  loaned  to  it 
by  the  people,  and  they  bear  interest  at  rates  varying 
from  5  to  7^^  per  cent,  and  are  payable  at  periods 
varying  from  three  to  forty  years.  The  bonds  des- 
ignated as  "  five-twenties,"  bear  gold  interest  at  six 
per  cent,  and  the  government  reserves  the  right  to 
pay  the  principal  in  five  years,  and  pledges  itself  to 
pay  it  twenty  years  from  date.  So  of  the  "ten- 
forties."  The  "seven-thirties"  are  so  named,  not 
from  the  time  of  payment,  but  from  the  rate  of  inter- 
est, which  is  7y1jV  per  cent,  payable  in  legal  tenders 
for  three  years,  when  the  principal  is  payable  in  the 
same,  or  fundable  in  six  per  cent  gold-bearing 
bonds,  at  the  option  of  the  holders.  So  ready  have 
the  An;erican  people  been  to  loan  money  to  their 
government  for  the  past  two  years,  and  take  these 
bonds  as  security,  that  the  treasury  has  experienced 
very  little  embarrassment  from  the  want  of  money, 
although  the  expenditures  have  been  at  times  over 
$3,000,000  a  day.  In  the  course  of  one  week  in  the 
spring  of  1865,  ninety  and  odd  millions  of  dollars 


ON  CREDIT,  319 

were  subscribed  to  a  national  loan.  It  is  believed 
that  the  history  of  national  borrowing  presents  no 
parallel  with  the  late  success  of  the  United  States 
in  realizing  money  in  the  way  of  loans.  The  largest 
English  loans  ever  made  w^ere  made  in  1812  and 
1813,  during  the  wars  with  Napoleon  and  the  United 
States.  In  these  two  years  the  British  exchequer 
borrowed  $534,000,000,  being  an  average  of  $22,- 
250,000  a  month,  and  pronounced  that  a  wonderful 
financial  achievement,  as  it  was ;  but,  from  an  ag- 
gregate of  national  wealth  not  larger  than  Eng- 
land's then  was,  though  from  a  larger  population, 
the  United  States  has  realized  in  four  years  from 
loans  a  sum  about  five  times  as  large  as  that,  and 
at  an  average  rate  of  interest  but  little  higher  than 
England  then  paid,  which  was  five  per  cent,  and  a 
fraction.^  The  national  debt  of  England  in  March, 
1863,  was  $3,915,000,000,  on  which  the  average  rate 
of  interest  was  three  and  one  half  per  cent.  The 
national  debt  of  France,  which  is  rather  more  than 
half  as  large  as  England's,  pays  rates  of  interest 
varying  from  three  to  four  and  one  half  per  cent. 
The  entire  debt  of  the  United  States,  Oct.  1st,  1865, 
was  $2,744,947,726;  and  the  total  interest  upon  it, 
$137,529,216. 

(3.)  Bills  of  exchange,  A  bill  of  exchange  is  a 
written  instrument  designed  to  secure  the  payment 
of  a  distant  debt  without  the  transmission  of  money, 
being  in  effect  a  setting  off  or  exchange  of  one  debt 
against  another.  Thus,  suppose  A  in  Boston  owes 
B  in  New  York  $1000,  and  another  party,  C  in 
New  York,  owes  A  in  Boston  a  like  sum ;  it  is  not 

1  Appleton's  Annual  Cyclopaedia,  1863.    Article,  "  Finances." 


820  ELEMENTS  OF  POLITICAL  ECONOMY. 

necessary  that  A  should  send  the  money  to  B  to 
cancel  his  debt,  and  C  send  the  money  to  A  for  a 
like  purpose ;  the  two  debts,  by  means  of  a  bill  of  ex- 
change, are  set  off  against  each  other,  and  both  trans- 
actions are  closed  without  sending  any  money  from 
one  city  to  the  other.  A  draws  a  bill  upon  C,  direct- 
ing him  to  pay  B  $1000,  and  sends  this  bill  to  C, 
who,  if  that  mode  of  payment  be  satisfactory  to 
him,  accepts  it  by  endorsing  his  name  upon  it,  which 
completes  the  transaction  between  A  and  C,  and 
then  presents  it  with  payment  to  B,  which  completes 
the  transaction  between  B  and  A.  A  is  called  the 
drawer  of  the  bill,  C  the  drawee  until  he  has  en- 
dorsed, and  then  the  acceptor,  and  B  is  the  payee. 
Sometimes  the  bill  passes  through  several  hands, 
which  may  either  be  by  successive  endorsements, 
specifying  to  whom  payment  is  to  be  made,  or  by 
what  is  called  an  endorsement  in  blank,  by  which  is 
meant  that  the  payee  or  subsequent  holder,  to  whom 
the  bill  has  been  endorsed,  merely  writes  his  own 
name  upon  the  bill,  which  is  equivalent  to  making 
it  payable  to  bearer.  The  remarkable  convenience 
of  bills  of  exchange  in  adjusting  debts  between  dis- 
tant places  has  already  brought  them  into  very 
general  use  wherever  the  necessary  basis  for  them 
in  commercial  integrity  is  supposed  to  exist ;  and 
every  year  is  witnessing  an  extension  of  their  use 
in  all  commercial  countries.  Bills  of  exchange  are 
either  payable  at  sight,  or  after  an  interval  fixed  in 
the  bill  itself;  and  are  either  inland  or  foreign  bills. 
Bills  which  have  some  time  to  run  before  maturity 
are  frequently  discounted  by  bankers  or  other  money- 
lenders, that  is  to  say,  the  payee  transfers  the  bill  to 


ON  CREDIT.  321 

them,  receiving  the  amount,  minus  interest  for  the 
time  it  has  still  to  run ;  and  the  bill  thus  serves  the 
important  function  of  enabling  a  debt  due  from  one 
person  to  be  made  available  for  obtaining  credit 
from  another.  It  is  a  principal  part  of  the  business 
of  banks  to  buy  in  this  manner  bills  of  exchange, 
either  real  bills,  or  accommodation  bills,  so  called, 
which  only  differ  from  the  others  in  that  there  is  no 
real  debt  between  the  drawer  and  drawee,  and  col- 
lect them  at  maturity,  thus  securing  bank  interest 
on  all  money  paid  in  purchasing  such  bills.  The 
bills  are  discounted  on  the  joint  credit  of  the  drawer 
and  acceptor.  It  is  evident  that  the  use  of  bills  of 
exchange,  especially  those  which  pass  from  hand  to 
hand  by  endorsement,  dispense  with  the  use  and 
transmission  of  large  amounts  of  money,  and,  as 
between  distant  places  especially,  are  one  of  those 
economizing  expedients  of  credit  which  are  the 
birth  of  modern  civilization  and  a  sound  mercantile 
honor. 

Very  similar  are  foreign  bills  of  exchange  in  their 
functions  and  usefulness.  Commercial  relations  be- 
tween two  countries,  say  for  example,  France  and 
England,  always  give  rise  to  a  mutual  indebtedness 
of  their  merchants,  and  if  these  debts  were  all  to  be 
paid  by  the  actual  sending  of  money  to  and  from, 
there  would  have  to  be  a  constant  and  expensive 
outward  and  inward  flow  of  the  precious  metals  in 
respect  to  each  country,  which  necessity  is  neatly 
obviated  by  the  use  of  bills  of  exchange,  and  coin 
is  only  transmitted  to  settle  the  balances  on  which- 
ever side  there  is  an  excess  of  debt.  French  dealers 
are  always  sending  goods  to  England,  and  English 

21 


322  ELEMENTS  OF  POLITICAL  ECONOMY. 

dealers  goods  to  France  ;  and  for  what  they  send  to 
England  the  French  merchants  draw  bills  on  the 
parties  to  whom  the  goods  are  consigned,  and  the 
English  merchants  draw  similar  bills  on  their  debt- 
ors in  France ;  these  bills  are  bought  up  by  bankers 
or  brokers  in  either  country,  and  exposed  again  for 
sale  to  any  parties  who  may  have  debts  to  pay  in 
the  other  country.  Thus  bills  on  London,  in  other 
words,  on  English  debtors,  are  always  for  sale  in 
France;  and  bills  on  France,  that  is,  on  French 
debtors,  are  always  for  sale  in  London ;  the  mutual 
debtors  of  the  two  countries,  therefore,  instead  of 
sending  coin  to  cancel  their  debts,  buy  and  trans- 
mit these  bills.  As  I  wish  to  make  the  course  and 
par  of  international  exchange  very  plain  to  my  read- 
ers, I  will  give  a  particular  illustration.  Suppose 
Pierre  &  Co.,  of  Paris,  send  a  cargo  of  wine  to  Bar- 
clay &  Co.,  of  London,  worth  £5000 ;  the  London 
firm  thereby  becomes  indebted  to  the  Paris  firm  to 
that  amount,  and  Pierre  &  Co.  draw  a  bill  on  Bar- 
clay &  Co.  for  X5000;  if  they  themselves  have  no 
debt  to  pay  in  London,  they  sell  this  bill  to  a  Paris 
broker  (if  the  exchange  be  then  at  par)  for  its  face, 
minus  interest  for  the  time  it  has  to  run ;  and  this 
broker  is  now  ready  to  sell  the  bill  again  to  anybody 
in  Paris  who  has  a  debt  to  pay  in  London  ;  and  the 
person  in  London  who  receives  it  in  liquidation  of  a 
French  debt  to  him,  presents  it  at  maturity  to  Bar- 
clay &  Co.  for  payment.  A  bill  drawn  in  London 
for  a  cargo  of  hardware  sent  to  Paris,  is  similarly 
negotiated  with  a  London  broker,  and  finds  its  way 
similarly  to  France,  in  payment  of  some  English 
debt,  and  ends  its  career  when  it  reaches  the  French 


ON  CREDIT.  323 

firm  on  which  it  was  originally  drawn.  We  are 
now  in  position  to  understand  clearly  what  is  meant 
by  the  par  of  exchange.  The  merchants  in  Paris, 
who  have  debts  due  to  them  in  London,  draw  bills 
of  exchange  for  the  amount  of  these  debts,  and, 
through  the  agency  of  middlemen  or  brokers,  go 
into  the  market  to  sell  these  bills  to  other  Paris  mer- 
chants who  have  debts  to  pay  in  London.  If  the 
former  set  have  a  larger  amount  to  sell  than  the 
latter  have  occasion  to  buy,  in  other  words,  if  there 
be  a  larger  amount  of  debts  due  from  London  to 
Paris,  than  from  Paris  to  London,  then  the  compe- 
tition of  the  sellers  of  bills  on  London  will  lower 
their  price  somewhat  in  the  market,  in  order,  as 
usual,  that  the  supply  and  demand  may  be  equal- 
ized. In  this  case  the  par  of  exchange  is  disturbed, 
a  bill  on  London  for  ,£100  may  not  sell  for  over 
^99,  and  the  exchange  is  then  said  to  be  one  per 
cent,  against  London,  or,  which  is  the  same  thing, 
one  per  cent,  in  favor  of  Paris.  The  par  of  ex- 
change, therefore,  between  two  countries,  depends 
upon  the  substantial  equality  of  their  mutual  debts; 
and  if  an  exchange  unfavorable  to  either  continues 
long,  and  especially  if  the  discount  on  its  bills  be 
sufficient  to  cover  the  charges  of  the  transmission  of 
specie,  gold  will  begin  to  flow  from  the  country 
against  which  the  exchange  has  turned,  and  the 
equilibrium  of  payments,  and  hence  the  par  of  ex- 
change will  be  restored.  Also,  the  par  tends  to 
restore  itself,  without  the  sending  of  specie,  in  this 
way :  if  bills  on  London  are  at  a  discount  in  Paris, 
for  the  same  reason  that  they  are  so  will  bills  on 
Paris  be  at  a  premium  in    London,  and   therefore 


824  ELEMENTS  OF  POLITICAL  ECONOMY. 

there  will  be  a  direct  encouragement  to  the  extent 
of  the  premium  for  exportations  from  England  to 
France,  because  on  every  cargo  sent  bills  can  be 
drawn  and  sold  in  London  for  a  premium ;  but  the 
more  bills  on  Paris  thus  offered,  the  more  the  pre- 
mium disappears,  and  the  par  of  exchange  is  restored 
so  soon  as  the  debts  thus  contracted  by  France  are 
equal  to  the  debts  due  her  from  England.  At  the 
same  time,  and  so  long  as  the  discount  on  London 
bills  continues,  there  is  a  discouragement  to  further 
exportations  from  France  to  England,  because  the 
'  bills  drawn  in  virtue  of  such  cargoes  can  only  be 
sold  below  par.  Here  is  another  instance  of  a  mag- 
nificently comprehensive  law  by  which  Nature  vindi- 
cates her  right  to  reign  in  the  domain  of  exchange. 
It  is  through  this  law,  stimulating  exportations  on 
the  one  side,  and  slackening  them  on  the  other,  that 
most  of  the  casual  disturbances  of  the  par  of  ex- 
change are  rectified ;  but  if,  notwithstanding  this, 
the  disturbance  continues  obstinate,  it  indicates  one 
of  two  things  as  true  of  the  country  against  which 
the  exchange  has  turned :  it  has  either  made  over- 
purchases  of  the  other  country  beyond  the  power  of 
its  ordinary  exports  to  cancel,  or  the  money  in  which 
the  bills  drawn  on  it  are  liable  to  be  paid  is  an 
inferior  money.  In  the  first  case,  the  only  proper 
remedy  is  an  export  of  gold  to  pay  off  the  old  scores, 
and  a  more  prudent  method  of  purchasing  in  the 
future;  in  the  second  case,  which  is  well  exemplified 
in  the  instance  of  Amsterdam,  cited  in  a  preceding 
chapter,  the  remedy  is  to  raise  the  currency  to  a 
good  specie  standard.  When  the  rates  of  exchange 
were   first   established    between   England    and   the 


ON  CREDIT.  825 

United  States,  the  pound  sterling  was  reckoned  as 
equal  to  $4.44  of  our  money  ;  since  then  the  weight 
and  fineness  of  our  gold  coins  have  been  reduced, 
and  the  real  par  of  exchange  is  one  pound  for  $4.87; 
the  old  nominal  par  however  remains  as  the  stand- 
ard, so  that  the  exchange  is  really  at  par  when  it 
stands  in  the  quotations  as  109^,  or  9i  per  cent, 
above  par.  Our  gold  dollar  contains  23.2  grains  of 
fine,  gold,  and  the  English  sovereign  113  grains  and 
a  fraction,  and  the  true  par  therefore  is  4.87  for 
1.  The  par  of  exchange  between  France  and  the 
United  States  is  5  francs  17  centimes  for  $1;  and 
between  France  and  England,  is  25  francs  20  cen- 
times for  £1. 

(4.)  Checks.  Formerly,  in  England,  and  in  other 
countries  as  well,  every  considerable  dealer  kept  his 
strong  box,  and  when  he  had  occasion  to  make  pay- 
ments, told  down  the  solid  cash  upon  his  own 
counter.  Afterwards,  the  goldsmiths  of  London 
solicited  the  honor  of  keeping  in  their  vaults  the 
spare  cash  of  the  merchants,  who  in  their  payments 
among  one  another  came  to  employ  checks  drawn 
on  the  goldsmiths,  and  at  the  shops  of  the  latter 
the  principal  payments  in  coin  were  effected.  The 
later  introduction  of  banks  brought  along  with  it 
the  custom,  now  continually  widening  in  commercial 
countries  among  all  classes  of  people,  of  keeping 
one's  funds  with  a  banker,  and  making  payments 
by  orders,  or  checks,  upon  him.  When  the  person 
making  the  payment  and  the  person  receiving  it 
keep  their  money  with  the  same  banker,  there  is  no 
need  of  any  money  passing  at  all  in  the  premises, 
the   sum   being  merely  transferred  in   the  banker's 


326  ELEMENTS  OF  POLITICAL  ECONOMY. 

books  from  the  credit  of  the  payer  to  that  of  the 
receiver.  The  banker  is  quite  willing  to  do  this 
business  for  nothing,  and  even  to  allow  the  depos- 
itors a  low  rate  of  interest  on  all  balances  remaining^ 
in  his  hands,  in  consideration  of  the  privilege  he  en- 
joys of  loaning  such  proportion  of  the  sums  as  he 
deems  safe  to  other  parties  at  a  higher  rate  of  inter- 
est. In  the  large  cities,  by  an  arrangement  called 
"  the  clearing-house,"  substantially  the  same  ben- 
efits are  secured  as  if  all  the  people  of  the  city 
kept  their  cash  at  the  same  bank ;  inasmuch  as  all 
the  checks  drawn  on  each  of  the  different  banks, 
and  passing  in  the  course  of  the  business  day  into 
other  banks,  are  assorted  before  evening  at  the  clear- 
ing-house, and  set  off  as  far  as  possible  against  each 
other,  leaving  only  balances  to  be  adjusted  in  money. 
So  long  as  the  banks  are  strong  and  solvent,  the 
safety  of  such  checks  is  only  surpassed  by  their  con- 
venience, which  itself  is  enhanced  by  the  facility 
with  which  they  pass  by  endorsement  from  hand  to 
hand,  perhaps  a  dozen  times  in  a  morning,  making 
payments  equal  to  their  face  as  often  as  they  are 
transferred,  and  thus  dispensing  with  the  use  of 
large  masses  of  coin. 

Some  of  the  advantages  of  credit  have  been 
already  anticipated  in  the  discussion  of  its  principal 
forms;  but  it  is  important  to  be  observed  that  credit 
creates  nothing  except  the  paper  embodying  the 
evidence  of  it,  but  either,  first,  transfers  the  owner- 
ship of  a  return-service  already  in  existence,  and 
ready  to  be  rendered  at  any  time,  into  other  hands; 
or,  second,  anticipates  a  return-service  not  yet  ready 
to   be   rendered.     Thus,  when    I   deposit   an  $100 


ON  CREDIT.  327 

with  a  sound  banker,  and  afterwards  draw  a  check 
for  the  amount,  which  check  passes  by  endorsement 
through  a  dozen  hands  before  being  presented  for 
payment,  there  is  a  simple  transfer  by  means  of 
credit  of  the  ownership  of  a  service  all  ready  to  be 
rendered  at  any  time,  and  the  check  does  more  con- 
veniently, perhaps,  exactly  w^iat  the  $100  in  cash 
would  have  done,  if,  instead  of  depositing  it  at  all, 
I  had  paid  it  out  to  the  man  to  whom  I  paid  the 
check,  and  he  to  the  second,  and  so  on  through  the 
dozen.  The  twelfth  man  in  either  case,  and  each 
in  turn  in  the  last  case,  receives  an  $100  in  cash, 
the  proprietorship  of  which,  in  the  case  of  the  check, 
passed  from  one  to  the  other.  But  when  1  loan  a 
poor  artisan  an  $100  to  buy  stock  with,  and  take 
his  note,  which  is  to  be  paid  from  the  proceeds  of 
his  year's  work,  the  return-service  is  wholly  antici- 
pated, and  the  element  of  time  comes  in,  as  well  as 
the  element  of  risk.  Indeed,  the  element  of  time  is 
the  only  basis  of  the  distinction  in  hand.  Credit  in 
its  nature  is  always  the  same  thing,  is  always  an 
exchange  in  which  the  return-service  is  contingent, 
and  although  the  probability  that  it  will  be  rendered 
is  susceptible  of  all  the  degrees  from  a  wellnigh 
certainty  that  it  will  to  a  wellnigh  certainty  that  it 
will  not,  that  is  a  m^atter  which  must  be  judged  of 
from  the  character  and  condition  of  the  party  who 
is  bound  to  render  it,  and  nothing  needs  to  be  said 
about  it  in  this  connection;  but  time  is  a  more  cal- 
culable element  in  credit,  and  since  credit  is  substan- 
tially delay  and  not  power,  since  it  only  transfers 
capital  from  hand  to  hand  and  creates  nothing,  it 
follows   that   for  the    safety   of   both   creditor   and 


828  ELEMENTS  OF  POLITICAL  ECONOMY. 

debtor,  the  time  of  credits  should  be  short.  Some 
people,  seeing  men  prosper  on  borrowed  capital, 
seeing  the  undoubted  benefits  of  some  forms  of 
credit,  have  jumped  to  the  conclusion  that  credit  is 
a  positive  productive  agent,  a  thing  to  be  put  on  a 
level  with  labor  and  capital.  No.  Labor  united 
with  capital  will  work  wonders,  and  the  nature  of 
capital  is  not  altered  by  the  fact  that  it  has  been 
borrowed,  and  when  skilfully  used  by  the  borrower 
will  net  him  a  profit  besides  paying  back  principal 
and  interest;  but  it  is  a  strange  jumble  to  ascribe  to 
the  credit,  which  merely  transfers  the  capital  for  a 
time,  the  efficiency  which  is  due  to  the  capital 
united  with  labor.  Let  the  nature  of  credit  be 
distinctly  understood  at  the  outset,  and  it  is  im- 
possible that  there  should  be  any  confusion  in  the 
premises.  Both  parties  to  a  credit  exchange  un- 
doubtedly expect  to  be  benefited  thereby,  otherwise 
it  would  not  be  made  ;  and  the  party  who  parts  with 
money,  or  labor,  or  whatever  is  rendered,  gives  over 
to  the  other  in  consideration  of  a  promised  equiva- 
lent, a  positive  power,  which  would  doubtless  have 
been  somewhat  eflScient  in  his  own  hands,  but 
which  is  expected  to  become  more  efficient  in  the 
hands  of  the  other.  Its  whole  efficiency,  therefore, 
obtained  in  the  hands  of  the  borrower,  is  not  due  to 
credit,  but  only  that  surplus  efficiency  over  and  be- 
yond what  the  loan  would  have  had  in  the  hands  of 
the  original  holder,  or  rather,  over  and  beyond  what 
must  be  rendered  by  the  borrower  to  the  original 
holder.  It  is  only  in  this  sense  that  credit  can  be 
said  to  have  efficiency  at  all ;  and,  short  times  being 
presupposed  as  essential,  since  the  gain  of  the  cred- 


ON  CREDIT.  .  329 

itor  is  not  in  the  promise  but  in  the  fulfihnent,  it  is 
precisely  here  that  we  are  to  look  for  the  first  class 
of  advantages  which  a  general  credit  system  can 
offer. 

There  are  some  men,  and  particularly  young  men, 
who  have  integrity  and  industry  and  skill,  but  no 
capital ;  and  when  such  men  are  enabled  to  borrow 
money  to  start  themselves  in  business,  or  to  enlarge 
a  business  already  in  successful  operation,  the  gen- 
eral interests  of  production,  as  well  as  their  personal 
interests,  are  subserved  by  such  credit,  because  in  all 
probability  capital  thus  passes  from  hands  which  are 
less  to  hands  which  are  more  able  to  use  it  produc- 
tively. Those  who  are  best  able  to  make  capital  tell 
are  generally  those  who  are  most  desirous  to  obtain 
it,  and  frequently  those  who  can  offer  the  best  secu- 
rity for  its  replacement.  Nothing  is  to  be  said  against, 
but  everything  in  favor,  of  such  a  loaning  of  capital 
as  shall  bring  it,  under  safe  conditions,  from  the  hands 
of  the  idle,  the  aged,  those  indisposed,  or  those  in- 
competent to  use  it  productively,  into  hands  at  once 
competent  and  honest.  Such  credit  is  a  benefit,  and 
only  a  benefit,  to  all  the  parties  concerned,  and  to 
society  at  large.  The  operators  retain  something  of 
profit  after  replacing  the  capital  with  interest;  the 
lenders  receive  more  than  if  their  capital  remained 
idle,  or  they  employed  it  themselves ;  and  society  is 
benefited  by  a  more  complete  development  and  rapid 
circulation  of  services.  Despite  all  the  instances  of 
broken  faith,  it  is  still  an  honor  to  human  nature  that 
men  do  so  gain  by  good  character  the  confidence  of 
their  fellows  that  they  are,  and  ought  to  be,  trusted 
with  capital  on  their  simple  word  or  note ;  and  it  is 


330  ELEMENTS  OF  POLITICAL  ECONOMY. 

the  glory  of  free  political  institutions,  that  under  their 
influence,  more  than  elsewhere,  young  men  with  no 
other  dower  than  integrity  and  purpose  do  rise,  by 
the  help  of  so  slight  a  stepping-stone  as  this,  in 
crowds,  to  the  high  places  of  opulence.  In  the  point 
of  view,  that  thus  all  the  available  capital  of  the  com- 
munity is  brought  out  into  productive  activity,  too 
much  can  scarcely  be  said  in  favor  of  joint-stock 
companies,  whose  managers  are  known  to  be  men 
of  probity,  which  gather  up  the  driblets  of  unoccu- 
pied capital  here  and  there,  and,  combining  them, 
enter  upon  paths  of  profitable  production,  which 
individual  enterprise  cannot  tread.  Too  much  can- 
not be  said  in  favor  of  savings-banks,  which  take  the 
surplus  earnings  of  the  poor,  and  not  only  keep  them 
safely,  but  pay  a  fair  interest  on  each  deposit,  and 
loan  the  aggregate  at  a  higher  rate  on  choice  secu- 
rities, thus  stimulating  frugality  in  a  wide  circle  of 
depositors,  and  at  the  same  time  aiding  production 
by  opportune  loans  to  the  best  class  of  borrowers. 
Here  too  come  in  life-insurance  companies,  which 
illustrate  the  advantages  of  credit  in  a  most  gratify- 
ing light,  and  whose  action  I  hope  to  see  extended 
to  larger  and  larger  classes  of  men,  since  it  tends  to 
transmute  low  and  selfish  cares  into  a  noble  care  for 
those  who  are  to  come  after,  who  might  otherwise 
be  left  penniless  dependants,  and  by  elevating  and 
enlarging  the  views  of  men,  to  make  them  better  pro- 
ducers and  better  citizens.  In  this  category  of  the 
advantages  of  credit  come  also  the  ordinary  bank  dis- 
counts, made  for  short  periods  only,  holding  the  debt- 
or to  the  strictest  rules  of  payment,  only  professing 
and  only  enabled  to  help  customers  over  the  transient 


ON  CREDIT.  331 

hard  places  in  their  business,  and  not  to  furnish  the 
funds  on  which  the  business  is  mainly  conducted. 
Sums  drawn  from  the  banks  on  credit  should  only 
form  a  part  of  the  circulating  capital  of  a  business, 
and  never  be  put  into  the  form  of  fixed  capital.  The 
passing  necessities  of  a  business  having  an  indepen- 
dent basis  of  its  own  can  be  safely  and  conveniently 
met  by  bank  discounts.  A  bank  is  essentially  a 
loan-office,  a  combination  of  money-lenders  who  put 
their  funds  together  for  the  better  lending  of  them,  a 
convenient  institution  at  which  lenders  and  borrowers 
come  together,  and  in  which  there  is  a  better  knowl- 
edge of  the  reputation  of  the  borrowers  for  solvency 
than  the  individual  lenders  could  separately  hope  to 
obtain.  So  far  as  the  capital  stock  is  made  up  of 
small  subscriptions,  it  has  the  advantage  just  spoken 
of,  of  calling  otherwise  idle  sums  into  activity;  and 
so  far  as  no  undue  privileges  are  accorded  to  it  by 
law,  there  is  no  branch  of  industry  more  legitimate 
and  beneficial  than  banking.  It  is  no  essential  part 
of  the  functions  of  a  bank,  that  it  manufacture  and 
issue  money ;  the  money  it  loans  should  be  the  na- 
tional money ;  and  if  that,  unfortunately,  be  credit 
money,  the  element  of  credit  in  the  money  should 
be  sharply  discriminated  in  the  public  mind  from  that 
element  of  credit  by  which  the  bank  loans  it  to  its 
customers.  Bank  credits  are  good,  but  that  does  not 
prove  that  credit  money  is  good;  and  it  was  one 
ground  of  the  viciousness  of  the  late  banking  system 
of  the  United  States,  that  the  different  kinds  of  credit 
involved  in  it  were  inextricably  interwoven  with  each 
other  in  the  common  apprehensions,  and  when  the 
money  failed  utterly,  as  it  did  repeatedly,  to  answer 


332  ELEMENTS  OF  POLITICAL  ECONOMY. 

the  purposes  of  money,  people  could  not  exactly  tell 
whose  fault  it  was. 

There  is  another  class  of  advantages  in  credit, 
which  do  not  depend  so  much  on  the  transfer  of 
capital  from  less  to  more  productive  hands,  as  on  the 
facilities  which  credit  affords  in  economizing  the  gen- 
eral operations  of  exchange.  Here  the  advantages 
are  derived  from  the  convenience  of  settling  accounts 
arising  out  of  exchanges,  rather  than  from  the  char- 
acter of  the  exchanges  themselves.  Look,  for  ex- 
ample, at  bills  of  exchange.  They  serve  to  settle  up 
the  accounts  arising  from  the  commerce  of  two  con- 
tinents, with  but  little  transmission  of  money  from 
either,  and  with  but  little  loss  of  time.  Bills  drawn 
in  New  York  on  London  are  usually  payable  at 
sixty  days'  sight;  and  the  merchant  dispatching  a 
ship  is  able  to  realize  at  once  the  value  of  her  cargo, 
minus  interest  for  the  time  his  bill  has  to  run  ;  he  is 
indeed  still  liable  in  part  to  see  that  his  bill  is  ulti- 
mately paid  by  his  drawee;  but  the  commercial  integ- 
rity of  the  leading  houses  in  all  countries  is  with 
justice  so  firmly  believed  in  and  acted  on,  that  on  the 
whole  but  little  anxiety  springs  from  this  source.  It 
is  one  of  the  noble  things  in  international  commerce 
that  men  trust  each  other  across  the  oceans,  and  lay 
millions  of  value  on  the  faith  of  a  single  firm.  Inland 
bills  of  exchange  equally  facilitate  settlements  within 
the  country  itself;  and  checks  contribute  to  the  same 
end  even  more  simply,  passing  readily  in  payments 
wherever  the  parties  are  known,  and,  though  credit, 
doing  the  work  of  money  more  conveniently,  and 
within  certain  limits  as  safely  as  money  itself  could 
do  it.    It  is  not  strange  that  some  thinkers  and  writ- 


ON  CREDIT.  333 

ers,  seeing  these  unquestionable  benefits  of  credit 
even  within  the  peculiar  sphere  of  money  itself,  have 
come  to  think  and  to  teach  that  credit  might  answer 
all  the  purposes  of  money,  and,  lilie  Herbert  Spencer, 
would  leave  the  largest  liberty  to  all  men  to  issue 
money  if  they  choose,  and  such  money  as  they  choose, 
and  as  much  money  as  they  choose,  supposing  that 
only  that  which  is  good  in  quality  and  sufficient  in 
quantity  can  gain  currency.  The  trouble  with  these 
writers,  every  one  of  them  is,  that  they  neglect  the 
second  and  more  delicate  function  of  money,  namely, 
that  it  is  and  ever  must  be  a  measure  of  value,  and 
treat  it  only  as  a  medium  of  exchange.  Their  scheme 
is  inadequate  therefore,  and  never  can  be  realized. 
The  very  advantages  of  credit  itself,  which  have  now 
been  explained,  are  dependent  on  this,  that  there  be 
underneath  it,  to  support  and  limit  it,  a  solid  basis  of 
value-money,  in  whose  denominations  value  can  be 
reckoned,  in  whose  coins  the  balances  of  credit  can 
be  struck,  and  whose  security  everywhere  by  natural 
laws  only  can  enable  fulfilment  to  join  hand  in  hand 
with  promise.  If  ever  credit  should  usurp  the  whole 
domain  of  money,  a  tolerable  standard  of  value 
would  be  no  longer  possible,  credit  itself  would  lose 
its  foothold,  and  the  vast  balloon  of  promise,  sailing 
for  a  while  through  the  blue,  the  joy  of  projectors 
and  the  wonder  of  credulous  spectators,  would  come 
down  to  the  earth  flapping,  and  floundering,  and 
ruined. 

There  are  some  natural  disadvantages  in  credit. 
The  first  is,  that  when  it  is  much  given  by  dealers  to 
consumers,  the  reverse  results  take  place  from  those 
already  characterized,  and  capital  passes  out  fi:om  the 


834  ELEMENTS  OF  POLITICAL  ECONOMY. 

hands  of  productive  operators  and  becomes  tempo- 
rarily unavailable  as  capital.  When  an  industrious 
artisan  or  merchant  has  trusted  out  $1000  to  dilatory 
customers  for  six  months  or  a  year,  it  is  so  much 
withdrawn  for  so  long  from  his  active  capital,  and  to 
make  up  the  consequent  loss  of  profit  there  must  be 
an  addition  to  the  prices  of  his  wares,  and  besides 
some  bad  debts  belong  to  such  a  systefti,  and  there 
must  be  an  additional  price  to  compensate  this,  and 
thus  the  customers  who  pay  promptly  bear  a  part  of 
the  proper  burden  of  the  delinquents,  who  at  least 
do  not  wholly  escape,  inasmuch  as  they  ultimately 
(if  they  pay  at  all)  pay  a  price  enhanced  by  their 
own  delay.  If  the  current  profit  of  capital  be  ten 
per  cent.,  and  the  merchant  sells  and  gets  returns 
five  times  a  year,  something  less  than  two  per  cent 
profit  may  be  charged  to  each  article,  but  if  he  only 
gets  returns  at  the  end  of  the  year,  ten  per  cent, 
must  be  put  upon  everything.  Hence  the  excellent 
maxim,  "  Quick  sales  and  small  profits." 

But  the  principal  disadvantage  of  credit  is  seen  in 
its  action  on  prices  through  increased  demand,  and 
in  its  consequent  tendency  to  produce  commercial 
crises  ;  and  this  chapter  will  be  concluded  by  a  pre- 
sentation of  this  subject,  together  with  a  sketch  of  the 
three  great  commercial  crises  that  swept  over  this 
country  in  1837,  1847,  and  1857. 

The  cause  of  commercial  crises  is,  in  general,  an 
undue  expansion  of  credit ;  or,  to  use  an  equivalent 
expression,  a  disproportion  between  the  amount  of 
debts  and  the  available  capital  in  the  loan-market, 
or  elsewhere,  to  meet  those  debts. 

A  man's  whole  purchasing-power  is  made  up  of 


0^  CREDIT.  835 

three  things:  first,  the  property  in  his  possession; 
secondly,  the  value  that  is  owed  to  him  ;  thirdly,  his 
credit.  He  can  buy  value  with  these  three  things; 
and  his  power  to  buy  is  exactly  measured  by  the  sum 
of  these  three  things.  But  while  the  first  two  are 
limited  and  ascertainable,  the- third,  credit,  is  in  a 
certain  sense  unlimited.  Being  based  upon  confi- 
dence, which  is  itself  a  variable  quantity,  a  man's 
credit  at  one  time  may  be  vastly  greater  than  at 
another,  compared  with  his  real  property  ;  and,  if  he 
have  the  reputation  of  doing  a  safe  and  regular 
business,  and  is  favored  by  circumstances,  he  will 
find  himself  sometimes  able  to  buy  on  credit  to  an 
extent  perfectly  enormous  compared  with  his  capital. 
Instances  are  given  of  dealers,  who,  in  times  of 
speculation,  have  effected  purchases  to  an  extent 
seventy  or  even  one  hundred  times  greater  than  their 
capital.  And  on  the  other  hand,  in  times  of  panic, 
men  of  known  character  and  of  financial  solidity 
find  it  impossible  to  borrow  a  dollar. 

Now  money  acts  upon  prices  only  by  being  offered 
in  exchange  for  commodities  ;  but  we  have  seen  that 
commodities  may  be  purchased  by  credit  as  well  as 
by  money ;  when,  therefore,  credit  is  offered  and  re- 
ceived for  commodities,  it  has  the  same  influence 
upon  prices,  as  when  money  is  offered  and  received 
for  them.  The  form  which  the  credit  assumes  to 
effect  the  purchase  is  a  matter  of  indifference,  whether 
bank-notes,  checks,  bills  of  exchange,  or  book-credits, 
what  acts  upon  prices  is  the  credit,  in  whatever  shape 
given,  or  whether  it  gives  rise  to  transferable  paper 
or  not. 

It  follows  from  this,  that  whenever  there  is  an  ex- 


836  ELEMENTS  OF  POLITICAL  ECONOMY. 

tension  of  credit  for  the  purpose  of  purchasing,  there 
will  be  a  corresponding  rise  of  prices.  He  who  em- 
ploys both  his  cash  and  his  credit  in  purchasing, 
creates  a  demand  for  the  article  to  the  full  amount 
of  his  money  and  credit  taken  together,  and  raises 
the  price  proportionally  to  both. 

There  might  be  a  simultaneous  rise  of  price  in 
several  commodities,  and  a  considerable  spirit  of 
speculation  manifested  in  these,  if  there  were  no  such 
thing  as  credit  and  all  business  were  done  by  ready 
money;  but  there  could  not  be  a  general  rise  of 
prices  as  to  all  commodities ;  for,  while  men  spent 
more  money  on  the  few  commodities,  and  they  rose 
in  price,  they  would  have  less  money  to  spend  on 
other  commodities,  and  these  would  not  rise,  but 
rather  fall.  It  is  only  when  credit  can  be  used  freely, 
and  increased  purchases  can  go  on  in  all  departments 
at  once,  that  there  can  be  a  rise  of  prices  as  to  all 
commodities,  and  a  universal  spirit  of  speculation. 

At  such  times,  and  while  prices  are  still  rising, 
men  seem  to  be  making  great  gains ;  those  that  sell 
while  the  fever  is  on  do  make  great  gains ;  and  they 
not  only  use  their  credit  freely,  but  they  really  have 
more  credit  to  use,  from  the  very  fact  they  seem  to 
be  prosperous.  Everybody  wishes  to  extend  his 
operations  to  the  utmost  limit,  in  order  to  realize  the 
greatest  possible  gains.  Everybody  wishes  to  use 
not  only  all  his  money,  but  all  his  credit.  Every- 
body desires  accommodation,  and  accordingly  every- 
body gives  accommodation.  All  forms  of  indebted- 
ness are  greatly  increased.  Promissory-notes,  bills 
of  exchange,  book-credits,  are  indefinitely  multiplied 
in  all  directions. 


ON  CREDIT.  337 

It  begins  now  to  be  perceived  in  certain  quarters, 
that  the  thing  has  been  overdone ;  speculative  pur- 
chases cease ;  prices  begin  to  fall ;  holders  of  com- 
modities are  anxious  to  sell ;  this  very  anxiety  makes 
the  price  decline  still  further ;  holders  rush  into  the 
market  to  avoid  a  still  greater  loss ;  and,  as  nobody 
wishes  to  buy  when  a  market  is  falling,  prices  go 
down,  down,  down.  Their  inflated  wealth  collapses 
in  the  hands  of  the  holders ;  a  panic  often  sets  in, 
more  unreasonable,  if  possible,  than  the  previous  over- 
confidence.  Men  must  realize  something  from  their 
property ;  they  sell  it  therefore,  frequently,  at  almost 
any  sacrifice ;  but  the  small  amounts  of  money  thus 
realized,  and  all  the  loans  which  can  be  extorted  for 
enormous  rates  of  interest,  now  when  credit  is  almost 
destroyed,  are  totally  inadequate  to  meet  the  immense 
mass  of  debts  contracted  when  confidence  was  high. 
Property  for  which  a  man  gave  his  note  for  $10,000 
is  now  worth  but  $1000,  but  that  fact  does  not  an- 
nihilate his  debt,  or  erase  his  name  from  the  unlucky 
paper ;  he  is  still  bound  for  the  $10,000.  And  as 
the  mass  of  paper,  greatly  augmented  during  the 
period  of  excitement,  comes  to  maturity,  how  can  it 
be  met  ?  It  cannot  be  met.  There  is  not  disposable 
capital  enough  in  the  loan-market  to  meet  it,  even  if 
it  could  be  made  available.  But  those  who  have 
capital  hold  on  to  it.  They  do  not  know  whom  to 
trust.  Everybody  seems  to  be  losing,  and  many  are 
failing  all  around  them,  and  they  will  not  loan. 
Those  men  therefore  who  have  these  debts  to  meet 
have  no  resource.  They  could  borrow  indefinitely  a 
few  months  before,  but  now  they  cannot  borrow  a 
dollar.     They  besiege  the   banks  with  which  they 


338  ELEMENTS  OF  POLITICAL  ECONOMY. 

deal,  sometimes  piteously,  and  sometimes  bitterly, 
for  accommodation.  But  the  banks  cannot  help 
them.  These  men  must  fail.  There  is  no  help  for 
it.  Thousands  do  fail  in  every  revulsion.  Distress, 
more  or  less  extensive,  is  the  invariable  consequent 
of  the  series  of  events  called  a  commercial  crisis. 
That  series  is  constituted  somewhat  in  this  manner : 
first,  business  a  little  brisk ;  second,  confidence  and 
credit  enlarging;  third,  a  spirit  of  speculation;  fourth, 
a  vast  increase  of  all  forms  of  debt ;  fifth,  the  revul- 
sion, or  what  may  be  called  the  cascade  of  discredit; 
sixth,  stagnation  and  distress. 

Such  is  the  general  course  and  history  of  a  finan- 
cial crisis ;  let  us  now,  as  was  proposed,  take  up  the 
three  great  crises  in  their  order. 

The  crisis  of  1837  was  characterized  by  a  more 
reckless  spirit  of  speculation,  and  by  more  general 
distress  among  all  classes  of  people,  than  has  been 
witnessed  in  the  country  since.  The  reason  of  this 
was,  and  it  is  the  grand  peculiarity  of  that  crisis,  that 
the  trouble  originated  in  the  currency ;  and  we  have 
already  sufficiently  learned  that  any  disorder  in  the 
currency  intensifies  and  repeats  itself  in  all  other 
directions. 

In  his  annual  message  to  Congress  in  1829,  Gen- 
eral Jackson  observes:  — "  The  charter  of  the  Bank 
of  the  United  States  expires  in  1836,  and  its  stock- 
holders will  most  probably  apply  for  a  renewal  of 
their  privileges.  In  order  to  avoid  the  evils  resulting 
from  precipitancy  in  a  measure  involving  such  im- 
portant principles  and  such  deep  pecuniary  interests, 
I  feel  that  I  cannot  in  justice  to  the  parties  interested 
too  soon  present  it  to  the  deliberate  consideration  of 


ON  CREDIT.  339 

the  Legislature  and  the  people.  Both  the  constitu- 
tionality and  the  expediency  of  the  law  creating  this 
bank  are  well  questioned  by  a  large  portion  of  our 
fellow-citizens,  and  it  must  be  admitted  by  all  that 
it  has  failed  in  the  great  end  of  establishing  a  uni- 
form and  sound  currency." 

It  must  be  said,  in  justice  to  General  Jackson, 
that  he  gave  the  friends  of  the  national  bank  a  fair 
warning.  He  served  a  notice  on  them  to  "  quit " 
seven  years  before  their  charter  expired.  Year  after 
year  in  his  annual  messages  he  reiterated  the  charges 
against  the  bank  ;  and  when,  in  1832,  he  vetoed  the 
bill  to  recharter  it,  and,  a  year  later,  removed  from 
its  custody  the  public  deposits,  everybody  knew  that 
the  national  bank  would  expire  with  its  charter. 

In  anticipation  of  this  event.  State  banks  sprung 
'  up  like  mushrooms,  each  anxious  to  obtain  a  share 
of  the  circulation  which  the  national  bank  was  about 
to  vacate.  There  was  an  over-issue  of  bank-bills. 
One  inevitable  effect  of  a  currency  inflated  in  this 
way  is  to  enhance  prices,  start  speculation,  expand 
credit,  and  prepare  the  way  on  the  rising  side  for  a 
crisis.  Another  effect,  just  as  necessary,  of  such 
over-issue,  is  to  turn  foreign  exchanges  against  a 
country,  and  drain  away  the  very  gold  on  which  the 
bank-bills  are  professedly  based.  When  the  inclined 
plane  of  speculation  and  expanded  credit  has  been 
gradually  ascended  in  accordance  with  the  first  effect, 
the  cascade  of  discredit  is  accelerated  by  the  second 
effect. 

Just  so  it  was  in  1837.  Large  numbers  of  banks 
came  into  being  with  very  little  scrutiny  into  their 
resources.     Whether  they  had  capital  or  not,  they 


340  ELEMENTS  OF  POLITICAL  ECONOMY. 

issued  their  bills  as  freely  as  the  oldest  and  best- 
established  institutions ;  and  the  banks,  in  which  the 
United  States  funds  were  deposited  after  their  remo- 
val, were  expressly  enjoined  by  the  government  to 
make  loans  freely,  especially  to  importing  merchants. 

In  such  a  state  of  things,  every  man  could  borrow, 
and  did  borrow.  A  spirit  of  speculation  set  in,  which 
was  not  confined,  as  usual,  to  business  men  and  deal- 
ers, but  attacked  all  classes  alike,  —  farmers,  mechan- 
ics, and  even  clergymen.  Under  the  influence  of 
floods  of  paper  money  prices  went  up  prodigiously. 

At  the  same  time,  the  depreciation  of  the  currency 
was  indicated,  as  it  always  is,  by  the  fall  of  the  ex- 
changes, and  the  unwonted  importation  of  foreign 
goods.  We  imported  in  the  year  1836  one  hundred 
and  ninety  millions,  while  we  exported  less  than  one 
hundred  and  twenty -nine  millions.  Gold  flowed 
from  the  country,  of  course  it  did,  until  thirty  millions 
of  specie  had  been  drained  from  the  reserves  of  the 
banks.  To  say  the  very  least  of  it,  $30,000,000,  in 
the  ordinary  state  of  the  currency  at  that  time,  drawn 
from  the  bank  reserves,  would  withdraw  $100,000,- 
000  from  circulation.  Just  imagine  the  effect  of 
withdrawing  $100,000,000  from  the  circulation  at  a 
time  when  the  mass  of  debts  is  enormous,  when 
everybody  must  have  money  or  fail,  and  when  gold 
has  largely  left  the. country.  You  will  have,  I  think, 
a  commercial  crisis  with  a  witness; — a  state  of 
things  described  by  Daniel  Webster,  when  he  speaks 
of  the  country  "  as  overwhelmed  with  irredeemable 
paper,  mere  paper,  representing,  not  gold,  nor  silver. 
No,  sir,  representing  nothing  but  broken  promises, 
bad  faith,  bankrupt  corporations,  cheated  creditors, 
and  a  ruined  people ! " 


ON  CREDIT.  341 

On  the  1st  of  January,  1837,  the  Secretary  of  the 
Treasury  estimated  the  state  of  the  currency  as  fol- 
lows :  —  Bank  bills  in  circulation  $120,000,000  ; 
specie  in  circulation,  $28,000,000  ;  specie  in  the 
banks,  $45,000,000.  Besides  the  drain  of  $30,000,- 
000,  which  was  shipped  to  Europe,  there  was  a 
still  further  drain  on  this  reserve  of  $45,000,000, 
in  consequence  of  two  governmental  regulations. 
The  first  was  the  operation  of  the  specie-circular. 
All  public  lands  must  be  paid  for  in  gold  and 
silver.  This  produced  frequent  and  sometimes  large 
drafts  from  the  banks  of  specie.  The  second  was 
the  order  issued  from  the  Treasury  Department  to 
distribute  the  surplus  funds  of  the  United  States 
among  the  several  States.  Those  State  banks  which 
had  received  the  public  deposits  on  their  removal 
""from  the  national  bank  supposed  that  the  money 
would  be  left  with  them  until  the  exigencies  of  the 
government  should  require  its  expenditure.  They 
had  therefore  treated  these  funds  as  so  much  capital 
on  which  they  could  make  loans.  Judge  then  of 
their  consternation,  when  they  received  an  order 
directing  them  to  distribute  these  funds  in  specie 
among  the  several  States.  Their  loans  must  be  at 
once,  and  very  largely,  curtailed. 

Then  came  the  reaction.  The  failure  of  a  single 
bank,  in  one  of  the  Middle  States,  created  a  panic, 
which  raged  till  every  bank  in  the  country,  without 
exception,  stopped  payment.  Even  the  banks  fa- 
vored with  the  national  deposits  suspended  with  the 
rest,  and  the  wheels  of  govA-nment  were  brought  to 
a  stand-still. 

An  extra  session  of  Congress  was  called,  and  what 


342  ELEMENTS  OF  POLITICAL  ECONOMY. 

did  the  President,  Mr.  Van  Buren,  propose?  To 
revoke  the  specie-circular  ?  Not  at  all.  To  postpone 
for  awhile  the  distribution  of  the  surplus  funds?  Not 
at  all.  The  Message  had  no  remedy  to  propose,  no 
relief  to  offer.  The  doctrine  was  for  the  first  time 
advanced,  that  all  the  government  could  do,  or  was 
designed  to  do,  was  to  take  care  of  itself,  and  could 
not  be  expected  to  legislate  with  reference  to  the 
monetary  concerns  of  the  people. 

The  revulsion  of  1847  was  different  in  several 
respects ;  neither  was  it  so  severe  in  this  country  as 
it  was  in  England ;  but  so  far  as  it  prevailed  in  each 
country,  it  seems  to  have  resulted  from  a  similar  set 
of  circumstances  in  each.  The  currency  did  not  play 
so  important  a  part  among  the  causes  as  we  are 
compelled  to  assign  to  it  in  the  crisis  of  1837,  nor  as 
it  undoubtedly  did  in  1857.  Neither  was  the  amount 
of  credits  so  much  enlarged  beyond  their  usual  or 
average  amount  as  is  generally  the  case  before  a 
revulsion. 

The  circumstances  were  briefly  these.  While 
credits  continued  about  as  they  were,  or  were  slightly 
increased  by  railroad  speculation,  the  capital  in  the 
loan-markets  which  had  supported  these  credits  from 
time  to  time,  and  on  which  they  depended,  was 
largely,  and  somewhat  suddenly,  drawn  off  to  be  put 
into  the  form  of  fixed  capital.  All  great  public  works, 
such  as  railroads,  canals,  and  so  on,  take  more  or  less 
money  out  of  the  loan-market,  and  convert  it  into 
fixed  capital,  and  thus  make  it  unavailable  for  future 
lending.  This  happened*  in  1847.  Railroad-building 
was  then  at  its  height.  The  continual  demands  on 
the  loan-market  by  these  railroad-calls  diminished  the 


ON  CREDIT.  343 

loanable  fund  to  such  an  extent,  that  they  who  had 
been  accustomed  to  rely  on  it  in  carrying  forward 
their  business,  and  whose  own  capital  had  become 
temporarily  or  permanently  unavailable,  found  it  im- 
possible to  command  that  perpetual  renewal  of  credit, 
which  had  previously  enabled  .them  to  struggle  on. 
Very  large  numbers  failed.  In  England  the  mischief 
was  so  extensive,  and  the  panic  so  great,  that  the 
government  resorted  to  the  expedient  of  allowing  the 
Bank  of  England  to  violate  its  charter,  and  increase 
its  loans  beyond  the  point  to  which  it  is  restricted  by 
law.  The  chief  interest  of  this  crisis  is,  that  it  illus- 
trates the  principle  that  circulating  capital  may  be 
transformed  into  fixed  capital  too  rapidly  for  the 
general  interests  of  production. 

I  pass  now  to  consider  briefly  the  last  crisis  of 
1857.  And  here  a  significant  fact  must  be  placed 
first  and  foremost.  On  the  first  day  of  January,  1856, 
as  is  shown  by  the  bank-returns  for  that  year,  there 
was  in  circulation  in  this  country  $195,000,000  of 
bank-notes;  and  to  support  this  enormous  circula- 
tion, there  was  at  the  same  time  less  than  $19,500,- 
000  of  specie  in  the  vaults  of  the  banks ;  that  is,  in 
the  whole  country,  the  circulation  of  bank-bills  ex- 
ceeded the  specie  reserves  in  the  proportion  of  ten  to 
one ;  while  in  particular  States  the  disproportion  was 
still  greater ;  in  Vermont  more  than  eighteen  to  one, 
and  in  Mississippi,  (Jefferson  Davis's  State,)  nearly 
forty-two  to  one.  It  is  obvious  that  the  banks  of  the 
country,  as  a  whole,  were  insolvent ;  they  could  only 
pay  one  dollar  in  ten  of  their  legal  obligations ;  these 
represented  not  gold  and  silver,  but  debts  due  to  the 
banks,   bonds,  mortgages,    and   private   notes,   and 


344  ELEMENTS  OF  POLITICAL  ECONOMY. 

however  sure  it  may  be  that  such  credit  money  will 
ultimately  be  redeemed,  it  is  totally  unfit  for  cur- 
rency. 

,  And  if  the  principles  in  regard  to  over-issue,  which 
we  have  so  often  explained,  are  correct,  and  they  are 
the  settled  doctrines  on  that  point,  it  follows  that  we 
had  in  1856  a  largely  depreciated  currency ;  and  it 
might  have  been  expected,  and  it  was  expected  and 
predicted,  that  that  depreciated  currency  would  pro- 
duce its  legitimate  and  necessary  fruits.  "  It  caused 
the  rapid  expansion  of  estimated  values  for  almost 
every  description  of  property,  and  thus  made  the 
anticipation  of  still  larger  values  a  ground  of  credit. 
High  prices  tempted  speculation ;  large  returns  ac- 
cruing from  almost  every  species  of  investment, 
tempted  merchants  and  business-men  to  become  bor- 
rowers on  a  large  scale." 

They  borrowed  to  carry  on  their  own  business, 
and  invested  their  real  capital  in  stocks,  in  railroads, 
in  Western  lands.  The  promise  and  the  prestige  of 
large  dividends  seduced  capital  from  its  safe  and  ac- 
customed channels  and  tended  to  expand  the  credit 
of  individuals  and  corporations  far  beyond  the  basis 
of  their  actual  property;  for,  it  is  important  to  notice, 
that,  at  such  times,  credits  are  based  not  only  on 
every  species  of  actual  property,  but  on  reputed 
property,  future  property,  possible  property. 

Thus  while  a  mass  of  debts  was  being  accumu- 
lated, and  credit-paper  of  every  name  was  multiplied 
to  an  unwonted  degree  beyond  the  convertible  value 
of  property  in  hand,  the  gold  of  the  country  was 
being  shipped  away,  as  it  always  tends  to  be  where 
a  depreciated  currency  prevails ;  and  the  quantity  of 


ON  CREDIT.  345 

imported  goods  was  vastly  increased,  as  it  always 
tends  to  be  in  such  circumstances. 

Such  was  the  state  in  which  the  country  found 
itself  in  the  summer  of  1857,  largely  indebted  both 
at  home  and  abroad. 

In  the  mean  time,  much  of  the  property  on  the 
strength  of  which  these  debts  had  been  contracted, 
begun  to  decline  in  value.  It  begun  to  be  discerned 
that  there  was  a  difference  between  reputed  property 
and  actual  property.  Real  estate  at  the  West,  city 
lots  and  wild  lands,  begun  to  collapse  from  their 
state  of  inflation.  Railroad  property  of  every  kind 
had  depreciated  down  to  the  neighborhood  of  actual 
value ;  while  a  decided  fall  in  the  price  of  manufac- 
tured and  imported  goods  was  inevitable. 

The  materials  for  a  panic  were  thus  in  readiness, 
when  an  event  occurred  which  sent  a  shock  through 
every  limb  and  fibre  of  the  immense  credit-system. 
This  was  the  failure  of  the  "  Ohio  Life  and  Trust 
Company."  It  was  a  corporation  that  had  enjoyed 
the  utmost  of  public  confidence,  into  whose  hands 
many  a  poor  man  had  passed  over  his  hard  earnings 
for  safe  keeping,  and  whose  branches  established  in 
all  the  great  cities  had  widely  connected  it.  A  large 
number  of  persons  all  over  the  country  were  inter- 
ested in  it,  either  as  stockholders,  or  depositors,  or 
holders  of  its  obligations.  Occurring  too  just  at  that 
critical  time,  its  failure  was  a  signal  everywhere. 
Merchants  and  business-men  came  home  from  their 
summer  resorts  and  watering-places  with  a  rush. 
Confidence  was  gone.  Every  man  was  suddenly 
called  on  to  pay,  but  looked  in  vain  for  a  place  where 
he  might  borrow.     Extensions  and  new  loans  it  was 


346      ELEMENTS  OF  POLITICAL  ECONOMY. 

impossible  to  obtain.  Prices  of  all  kinds  of  property- 
went  down  to  a  minimum.  Assets  of  debtors 
dwindled,  till  they  could  no  longer  sustain  credit  or 
furnish  liquidation.  As  by  a  touch,  property  shriv- 
elled from  the  dimensions  imparted  to  it  by  universal 
confidence  and  anticipated  profits,  to  a  mere  skele- 
ton. To  complete  the  disaster,  the  panic  attacked 
the  currency,  and  the  banks  suspended.  I  am  not 
altogether  without  hopes  that  the  one  just  character- 
ized will  be  the  last  of  the  series  of  great  national 
commercial  crises. 


ON  FOREIGN  TRADE. 


347 


CHAPTER  Xni. 


ON  FOREIGN  TRADE. 


The  principles  which  determine  the  question  of 
foreign  trade  have  been  akeady  unfolded  in  these 
pages.  It  is  only  because  their  application  to  the 
wider  field  of  international  exchanges  has  been  con- 
tested by  some  persons,  while  conceding  their  valid- 
ity within  the  boundaries  of  the  individual  nations, 
that  it  is  now  needful  to  bestow  upon  the  subject  a 
separate  treatment,  to  demonstrate  that  the  laws 
of  exchange  are  universal  and  not  partial,  and  to 
attempt  to  answer  with  candor  and  thoroughness  the 
objections  that  have  been  raised  to  the  conclusions 
established  by  the  almost  unbroken  unanimity  of 
political  economists  who  have  written  during  the  last 
hundred  years.  Here,  as  everywhere  else  within  the 
science,  the  safe  appeal  lies  to  the  common  sense  of 
men.  A  writer  whose  simple  object  is  to  reach  the 
truth,  and  who  has  no  interest,  real  or  supposed,  in 
defending  or  overthrowing  a  dogma,  will  not  confuse 
the  understanding  of  his  readers,  and  his  own,  by 
leaping  at  once  into  the  most  complicated  phenom- 
ena which  the  domain  of  exchange  exposes  to  the 
observation  of  an  intelligent  science.  He  will  take 
the  simplest  cases  first,  will  display  familiarly  the 
principles  applicable  to  them,  and  then  with  the  clue 
well  in    hand,  will   pass   on,  and   can  be  followed 


348  ELEMENTS  OF  POLITICAL  ECONOMY. 

through  the  most  intricate  portions  of  the  subject.  It 
is  not  owing  so  much  to  any  inherent  difficulties  of 
the  subject-matter,  that  the  question  of  foreign  trade 
has  been  the  vexed  question  of  the  late  centuries,  as 
it  has  been  owing  to  a  false  method  pursued  in  dis- 
cussing it;  a  method  which,  however  favorable  to 
the  apparent  establishment  of  current  maxims,  and 
however  approved  by  men  of  interested  views,  can 
never  be  made  useful  in  the  investigation  of  truth. 
It  may  be  considered  as  a  point  already  well  settled 
by  experience,  that  no  man's  sagacity  is  sufficient  to 
guide  himself  or  others  to  any  sound  conclusions  on 
this  field,  who  takes  his  stand  at  the  outset  amid  the 
whirl  of  interlocking  phenomena,  and  then  endeavors 
to  work  himself  out  through  the  entangling  meshes 
which  surround  him  at  every  step.  Happily,  there  is 
no  need  of  any  such  procedure.  Man  is  man,  motive 
is  motive,  and  exchange  is  exchange ;  and  the  ap- 
parent chaos  of  commerce  can  be  resolved  through 
these  alone  into  harmony  and  order. 

In  our  third  chapter  it  was  put,  I  believe,  beyond 
the  reach  of  controversy  or  cavil,  that  the  only  reason 
why  men  ever  exchange  services  at  all,  is  on  the 
ground  of  a  relative  superiority  at  different  points. 
This  relative  superiority  at  different  points  was 
shown  to  depend  in  individuals  partly  on  natural 
gifts,  partly  on  concentration  of  mind,  or  muscle,  or 
both,  on  a  single  class  of  efforts,  and  partly  on  the 
use  and  familiarity  in  the  use  of  the  gratuitous  helps 
of  Nature  aiding  that  class  of  efforts.  The  tailor 
makes  the  blacksmith's  coat,  and  the  blacksmith 
shoes  the  tailor's  horse,  for  no  other  reason  in  the 
world,  except  that  each  has  a  relative  advantage  of 


ON  FOREIGN  TRADE.  349 

the  other  in  his  own  work,  and  therefore  there  is  a 
mutual  gain  in  their  exchanging  works.  To  pretend 
that  there  would  be  any  exchange  between  them,  in 
case  the  blacksmith  could  make  coats  as  well  as  the 
tailor,  and  the  tailor  shoe  horses  as  well  as  the  black- 
smith, would  be  to  assert  that,  man  acts  without  a 
motive,  and  that  exchanges  take  place  without  a 
gain.  It  was  also  shown  in  the  same  connection, 
that  the  greater  the  difference  of  relative  advantage, 
the  greater  the  gain  of  an  exchange,  because  each 
purchases  the  service  of  the  other  at  the  rate  of  his 
own  highest  efficiency.  To  recur  to  the  same  ex- 
ample, while  the  efficiency  of  the  tailor  and  the 
blacksmith  each  in  his  own  trade  remained  at  6,  the 
efficiency  of  each  in  the  trade  of  the  other  being  at 
5,  there  was  only  a  gain  of  2  to  be  divided  between 
them ;  but  when  by  concentration  and  application 
the  efficiency  of  each  in  his  own  trade  rose  to  15,  his 
efficiency  in  the  other  remaining  at  5,  there  was  a 
gain  of  20  to  be  divided  between  them.  When  the 
relative  superiority  of  each  over  the  other  in  his  own 
trade  was  low,  the  gain,  though  sufficient  to  justify 
the  exchange,  was  small ;  but  when  the  difference  of 
relative  advantage  increased,  just  in  that  ratio  did  the 
exchange  become  more  profitable  to  both.  The  obvi- 
ous inference  from  this,  then  drawn,  and  now  re- 
peated, is,  that  every  person  who  exchanges  with 
others  is  directly  interested  in  the  highest  efficiency 
and  success  of  their  efforts  as  well  as  his  own.  The 
diversity  of  relative  advantage  at  different  points 
exhibited  by  different  nations,  and  consequetuly  the 
gains  of  international  exchange,  were  expressly  re- 
served at  that  point  to  a  later  stage  of  our  inquiry. 
That  stage  is  now  reached. 


350  ELEMENTS  OF  POLITICAL  ECONOMY. 

The  various  countries  of  the  earth  have  received 
from  the  hands  of  God  a  diversity  of  original  gifts, 
in  climate,  soil,  natural  productions,  position,  and 
opportunity.  This  diversity  exists  for  a  good  de- 
sign, and  can  never  be  substantially  reduced  by  man, 
even  if  there  were,  as  there  is  not,  any  good  reason 
for  desiring  to  reduce  it.  Besides  original  diversity 
in  these  respects,  there  has  been  developed  in  the 
history  of  the  inhabitants  of  these  countries,  a  diver- 
sity of  tastes,  aptitudes,  habits,  strength,  intelligence, 
and  skill  to  avail  themselves  of  the  forces  of  Nature 
around  them.  These  differences  are  somewhat  less 
inherent  and  more  flexible  than  the  others,  but  they 
exist,  and  always  have  existed,  and  in  a  greater  or 
less  degree  always  will  exist ;  and  it  is  on  these  diver- 
sities, original,  traditional,  and  acquired,  that  inter- 
national commerce  depends ;  it  never  would  have 
come  into  existence  without  them,  and  it  would 
cease  instantly  and  completely  were  they  to  fade 
out.  Men  do  not  engage  in  foreign  trade  for  fun ; 
they  engage  in  it  for  the  sake  of  the  mutual  gain 
derivable  to  both  parties ;  they  desist  from  it  so  soon 
as  that  mutual  gain  disappears ;  and  there  is  no 
mutual  gain  in  any  series  of  exchanges,  unless  each 
party  has  a  superior  power  in  producing  that  which 
is  rendered,  compared  with  his  power  in  producing 
that  which  is  received.  We  will  suppose  a  trade 
between  England  and  France  in  cottons  and  silks, 
England  sending  cottons  to  France,  and  France 
sending  silks  in  return.  When  and  how  long  will 
this  be  a  profitable  trade  ?  Then,  when  efforts  be- 
stowed in  France  upon  silks  will  procure,  through 
exchange  with  England,  more  of  cottons  than  the 


ON  FOREIGN  TRADE.  351 

same  amount  of  efforts  bestowed  in  France  upon 
cottons  will  produce  of  cottons  directly;  and  then, 
when  efforts  bestowed  upon  cottons  in  England  will 
procure  more  of  silks,  through  exchange  with  France, 
than  the  same  amount  of  efforts  bestowed  in  Eng- 
land upon  silks  will  produce  of  silks  directly.  So 
long  as  there  is  a  difference  of  relative  efficiency  in 
the  production  of  the  two  commodities  in  the  two 
countries,  so  long,  setting  cost  of  carriage  aside,  may 
there  be  a  profitable  exchange  of  the  two.  To  make 
such  an  exchange  profitable  to  both  parties,  it  is  not 
at  all  needful  that  the  cottons  exchanged  for  the  silks 
shall  have  cost  the  English  as  many  days'  labor  as 
the  silks  may  have  cost  the  French  ;  or  that  the  silks 
shall  cost  the  French  as  much  as  the  cottons  cost  the 
English  ;  it  is  not  a  question  of  the  absolute  cost  of 
either  commodity  to  the  parties  producing  it ;  but  a 
question  of  the  relative  cost  of  that  produced  in 
either  country  compared  with  what  would  be  the 
cost  of  the  other  commodity  were  it  to  be  produced 
in  that  country.  The  question  for  the  Frenchman 
is,  Can  I  get  more  cottons  by  working  on  silks 
for  a  month,  and  then  trading  with  England,  than  I 
can  get  by  a  month's  work  on  cottons  at  home  ?  And 
the  question  for  the  Englishman  is.  Can  I  get  more 
silks  by  making  cottons,  and  then  trading  with 
France,  than  I  can  get  by  trying  to  make  silks  at 
home  ?  As  this  point  is  fundamental,  and  deter- 
mines the  whole  matter  of  foreign  trade,  it  shall  be 
illustrated  arithmetically.  Suppose  that  cottons 
costing  $100  in  England  exchange  for  silks  costing 
$80  in  France  :  is  that  a  losing  trade  for  England  ? 
Not   necessarily.      Is   it   a    remunerative   trade   for 


352  ELEMENTS  OF  POLITICAL  ECONOMY. 

France  ?  Not  necessarily.  It  depends  simply  upon 
this :  whether  $100  expended  in  England  in  the 
manufacture  of  silks  will  produce  as  many  and  as 
good  silks  as  can  be  obtained  for  $100  by  exchange 
with  France  ?  If  it  will,  depend  on  it,  that  $100 
will  never  go  to  France  to  buy  silks.  If  it  will  not, 
and  silks  are  in  demand  in  England,  then,  clearly, 
the  trade  is  advantageous  to  the  Englishman.  If 
the  cottons  costing  $100  in  England,  and  obtained  in 
exchange  for  silks  which  cost  but  $80  in  France,  can 
there  and  then  be  made  for  $75,  France  makes  a 
losing  trade  (but  only  by  supposition),  though  she 
gets  what  cost  $100  for  what  cost  but  $80.  My 
readers  will  perceive,  that  it  is  not  the  absolute  cost 
of  commodities  to  the  countries  producing  them  that 
determines  their  value  in  foreign  trade,  but  that  cost 
relatively  to  what  would  be  the  cost  of  the  return 
commodities  were  they  to  be  grown  or  manufactured 
there.  A  demand  in  each  country  for  the  product 
of  the  other  is  of  course  presupposed  in  the  illustra- 
tion. 

If  this  general  representation  be  just,  and  I  think 
every  thoughtful  person  will  concede  it,  then  it  fol- 
lows, that,  setting  aside  a  greater  cost  of  carriage, 
foreign  trade  presents  no  elements  pecuHar  to  itself, 
but  only  the  same  elements  which  domestic  trade 
presents ;  and  consequently,  that  the  same  laws  and 
limitations  applicable  to  domestic  exchanges  are  ap- 
plicable also  to  foreign  exchanges.  As  in  every  other 
exchange,  so  here,  there  are  two  efforts,  represented 
in  this  case  by  the  cost  of  the  respective  commodi- 
ties, —  the  cottons  $100,  and  the  silks  $80 ;  there  are 
two  desires,  —  the  desire  of  the  Englishman  for  silks, 


ON  FOREIGN  TRADE.  353 

and  of  the  Frenchman  for  cottons ;  there  are  two 
estimations,  —  the  estimation  of  the  Frenchman  of 
the  effort  in  silks  required  to  obtain  the  cottons  by- 
exchange  compared  with  the  effort  required  to  obtain 
them  directly,  and  the  Englishman's  estimation  of 
his  effort  in  cottons  necessary  to  procure  the  silks  in 
exchange,  compared  with  what  would  be  the  effort 
needed  to  manufacture  the  silks  in  England;  and, 
finally,  as  always,  two  satisfactions. 

Now  let  us  further  suppose  that  while  the  cottons 
cost  $100  in  England,  it  would  cost  $120  to  manu- 
facture there  as  good  silks  as  can  be  made  in  France 
for  $80 ;  and  that  while  the  silks  cost  but  $80  in 
France,  it  would  cost  $96  to  make  cottons  there  as 
good  as  the  English  can  make  for  $100.  On  this 
supposition,  France  can  make  both  silks  and  cottons 
at  a  cheaper  absolute  cost  than  England  can.  But 
does  that  destroy  the  motive  and  the  gain  of  an  ex- 
change between  the  countries  in  these  two  articles  ? 
Let  us  see.  By  exchange  with  England,  France 
gets  for  $80  in  silks,  cottons  which  would  otherwise 
cost  her  $96,  —  a  handsome  gain  of  20  per  cent. ; 
England  gets  for  cottons  costing  her  $100  silks 
which  would  otherwise  have  cost  her  $120, —  another 
handsome  gain  of  20  per  cent.  Though  France  can 
make  each  commodity  for  less  absolute  money  than 
England  can  make  either,  there  is  a  diversity  of  rela- 
tive advantage,  and  therefore  there  might  be  in  this 
case,  as  there  is  actually  in  many  such  cases,  a  prof- 
itable trade.  The  efficiency  of  France  in  making 
silks,  relatively  to  that  of  England  in  making  silks, 
is  in  the  ratio  of -80-^^r^:^, —  a  difference  of  50  per 
cent. ;    while   the   efficiency    of  France   in   making 

23 


1^0  :^^ 


854  ELEJrENTS  OF  POLITICAL  ECONOMY. 

cottons,  relatively  to  that  of  England  in  making  the 
same,  is  only  in  the  ratio  of  96-talOO,  —  a  difference 
of  4^  per  cent.  In  the  majority  of  cases,  doubtless, 
foreign  trade  takes  place  in  articles,  in  the  production 
of  one  of  which  each  of  the  respective  countries  has 
an  absolute  advantage  over  the  other,  but  an  every 
way  advantageous  trade  may  be  carried  on  in  articles 
in  the  production  of  both  of  which  one  nation  shall 
have  an  absolute  superiority  over  the  other,  provided 
only  that  this  superiority  be  relatively  diverse  in  the 
two  articles,  as  has  just  been  shown.  This  is  an 
effectual  answer,  as  I  take  it,  to  the  clamor  of  some, 
who  object  to  importing  articles  which  might  be 
made  at  home  for  the  same  sum  of  money  as  for- 
eigners expend  in  making  them;  admitted,  that  they 
might  be  so  made;  does  it  follow  that  the  country 
importing  them  would  get  them  as  cheaply  by 
making  them  itself?  By  no  means  does  that  follow. 
By  the  supposition,  the  importing  country  has  an 
efficiency  in  making  those  articles  equal  to  that  of 
the  foreign  country  ;  but  it  may  also  have  a  superi- 
ority absolute  or  relative  over  that  country  in  the 
production  of  other  articles  which  that  country  wants 
in  exchange  ;  if  so,  the  exchange  complained  of  may 
go  on  to  the  manifest  profit  of  both  parties.  Our 
general  supposition  a  little  changed  will  put  this  case 
in  its  true  light :  France  can  make  cottons  for  $100 
which  it  costs  England  also  $100  to  make ;  shall  she 
give  up  her  trade  with  England  in  silks  and  cottons, 
because  she  can  make  cottons  as  cheap  as  England 
can  ?  She  had  better  not.  Let  the  exchange  go  on  ; 
for  $80  in  silks  she  gets  cottons  which  would  other- 
wise cost  her  $100,  —  a  gain  of  25  per  cent. ;   Eng- 


ON-  FOREIGN  TRADE.  355 

land  gets  silks  for  $100  which  would  otherwise  cost 
her  $120,  —  a  gain  of  20  per  cent,  as  before.  Let  no 
nation  be  in  haste  then  to  drop  a  trade,  because  it 
thinks  it  can  make  the  article  received  in  exchange 
as  cheaply  as  the  other  nation  makes  it,  so  long  as  it 
has  an  advantage  over  the  other,  absolute  or  relative, 
in  making  the  article  rendered  in  exchange ;  and  when 
that  advantage  ceases,  the  trade  will  drop  of  itself. 

What  will  be  the  extreme  limits  of  the  value  of 
cottons  and  silks  in  a  trade  between  England  and 
France  under  the  conditions  supposed  ?  And  when 
will  a  third  nation  be  able  to  undersell  either  in 
the  ports  of  the  other?  The  extreme  value  of 
French  silks  in  English  cottons,  will  be  80  and  96 ; 
they  cannot  fall  below  80,  because  they  cost  the 
French  that  to  produce  them ;  they  cannot  rise 
above  98,  because  at  that  rate  the  French  can  make 
cottons,  and  there  would  be  no  gain  in  exchanging. 
Nations,  no  more  than  individuals,  will  get  them- 
selves served  at  a  greater  effort  than  that  at  which 
they  can  serve  themselves.  If  a  given  effort  does 
not  realize  more  through  exchange  than  it  would 
directly,  then  the  exchange  ceases  of  necessity,  as 
fire  goes  out  for  lack  of  fuel.  The  extreme  limits  of 
the  value  of  English  cottons  in  French  silks,  will  be 
100  and  120,  for  reasons  precisely  similar.  There- 
fore the  highest  profits  possible  to  both  nations, 
under  the  conditions  of  the  trade,  are  20  per  cent, 
each.  France  would  be  glad  to  take  the  cottons  at 
a  return  of  80,  at  which  rate  her  gain  would  be  20 
per  cent. ;  and  she  cannot  under  any  circumstances 
offer  quite  96,  at  which  rate  her  gain  would  disap- 
pear.    No  third  nation,  therefore,  in  a  trade  of  silks 


356  ELEMENTS  OF  POLITICAL  ECONOMY. 

for  cottons,  can  expel  the  French  from  the  English 
ports,  until  it  is  prepared  to  offer  nearly  96,  or 
more,  in  silks  in  return  for  English  cottons ;  that 
is  to  say,  until  its  efficiency  in  making  silks  rel- 
atively to  that  of  England  in  making  them,  differs 
more  than  that  of  France  does,  from  the  efficiency 
of  France  in  making  cottons  relatively  to  that  of 
England  in  making  the  same.  A  greater  difference 
of  relative  advantage,  and  nothing  else,  will  enable 
a  third  nation  to  undersell  France  in  such  a  trade. 
England  would  be  glad  to  take  the  silks  at  a  return 
of  100,  at  which  rate  her  gain  is  20  per  cent. ;  and 
she  cannot  possibly  offer  quite  120,  because  at  that 
rate  her  gain  would  wholly  vanish.  She  could  be 
undersold  in  the  French  ports,  under  similar  condi- 
tions, and  not  otherwise,  as  the  French  in  her  own 
ports,  as  just  now  indicated.  We  have  seen  that 
the  difference  of  relative  efficiency  in  the  production 
of  the  two  articles  in  the  two  countries  is  in  the  ratio 
of  50  to  4j  ;  and  no  nation  can  take  away  the  silks 
of  France  from  the  English,  or  the  cottons  of  Eng- 
land from  the  French,  either  with  other  cottons  and 
silks,  or  any  other  commodity,  unless  its  efficiency  in 
the  production  of  the  commodity  whatever  it  be, 
relatively  to  the  efficiency  of  the  two  countries  in 
the  production  of  the  two  commodities,  presents  a 
greater  difference  than  50  to  4^.  Here  is  the  whole 
doctrine  of  one  nation's  underselling  another  in  the 
ports  of  a  third.  It  can  do  so  under  conditions  of 
greater  relative  efficiency,  and  not  otherwise. 

So  far  we  have  considered  only  their  relative  cost 
of  production  as  determining  the  value  of  articles  in 
foreign  trade.     But  we  know  that  the  element  of 


ON  FOREIGN  TRADE.  357 

desires  also  helps  to  determine  all  value.  We  come 
now  to  illustrate  what  is  sometimes  and  properly- 
called  "  the  Equation  of  International  Demand." 

If  the  demand  for  French  silks  in  England  just 
answers  to  the  demand  for  English  cottons  in  France, 
so  that  the  silks  offered  by  France  just  pay  for  the 
cottons  offered  by  England,  then,  cost  of  carriage 
aside,  the  gains  of  the  trade  will  be  equally  divided 
between  the  two  nations,  each  will  realize  20  per 
cent^  profit,  because  neither  will  have  any  motive  to 
lower  the  value  of  its  commodity  below  its  highest 
value ;  France,  from  its  point  of  view,  will  offer  80  in 
silks  and  get  96  in  cottons ;  England,  from  her  point, 
will  offer  100  in  cottons  and  get  120  in  silks.  Demand 
and  supply  are  equalized  at  a  point  of  value  most 
favorable  to  both  parties,  and  really  determined  by 
the  relative  cost  of  production.  This  case  of  equali- 
zation, though  possible,  is  likely  rarely  to  occur  in 
practice.  On  any  terms  of  exchange  first  offered, 
there  is  likely  to  be  a  stronger  demand  in  one  country 
for  the  product  of  the  other  than  in  this  country  for 
tlie  product  of  that.  This  will  lead  to  a  change  of 
value,  and  a  new  division  of  profits.  The  product 
for  which  the  demand  is  less  will  find  its  market 
sluggish,  and  in  order  to  tempt  further  and  brisker 
exchanges,  will  be  compelled  to  offer  more  favorable 
conditions.  He  who  enters  a  market  in  quest  of 
what  is  more  in  demand  with  a  service  in  return 
which  is  less  in  demand,  will  have  to  lower  his 
terms,  or  not  trade.  The  equalization  of  supply  and 
demand  will  only  be  reached  in  this  case,  by  quicken- 
ing the  demand  for  the  commodity  now  less  in 
demand,  through  an  offer  of  better  terms  in  trade. 


358  ELEMENTS  OF  POLITICAL  ECONOMY. 

Thus,  if  the  demand  for  French  silks  in  the  English 
ports  be  slack,  in  comparison  with  the  demand  for 
English  cottons  in  France,  at  the  rate  of  exchange 
first  established — 80  for  96,  the  French  merchant  has 
no  resource,  if  he  wishes  to  continue  the  trade,  but  to 
offer  more  silks  for  the  same  amount  of  cottons,  say, 
85  for  96.  If  this  reduction  prove  sufficient  to  can- 
cel the  account  in  cottons  with  the  account  in  silks, 
then  the  trade  will  go  on  on  this  new  basis  for  a 
while,  the  equalization  of  supply  and  demand  has 
been  reached  through  a  new  valuation  of  the  com- 
modities, and  there  is  now  a  different  division  of  the 
profits.  France  gains  now  only  13  per  cent,  by  her 
trade  with  England,  while  England  gains  27^  per 
cent,  in  her  trade  w^th  France.  Under  these  new 
terms  of  exchange,  it  is  possible  that  silks  may  again 
become  heavy  in  reference  to  cottons,  and  a  new  de- 
cline  take  place  in  their  relative  value.  If  the  French 
are  obliged  to  offer  90  for  96,  in  order  to  obtain  the 
cottons  they  want,  their  profits  w^ill  sink  to  5f  per 
cent.,  while  the  English  profits  will  rise  to  35  per 
cent.  If,  in  any  contingency,  the  French  were  com- 
pelled to  offer  in  the  neighborhood  of  96  in  silks  for 
96  in  cottons,  the  trade  would  cease  of  course,  just 
as  every  other  transaction  ceases  when  the  motive 
for  it  ceases.  Of  course,  the  cottons  are  just  as  likely 
to  become  dull  in  reference  to  silks,  as  the  silks  to 
cottons,  and  in  this  case  England  must  lower  her 
demands,  and  thus  surrender  a  larger  share  of  the 
profits  to  France.  By  the  play  of  supply  and 
demand,  within  the  outermost  limits  drav/n  by  the 
relative  cost  of  production,  is  the  value  of  articles 
determined  in  foreign  trade ;  and  no  degree  of  com- 


ON  FOREIGN  TRADE.  369 

plication  in  the  variety  of  articles,  or  in  circuitous  ex- 
changes, affects,  for  substance,  these  fundamental 
principles.  For  example,  if,  instead  of  one  article, 
as  cottons,  England  sends  two  articles,  or  ten,  to 
France  in  payment  for  silks,  she  will  send  in  prefer- 
ence that  article  in  which  her  labor  is  relatively  most 
efficient,  so  long  as  the  French  demand  will  receive 
it ;  then,  when  obliged  to  lower  on  that  down  to  the 
point  at  which  her  next  most  available  article  stands, 
she  will  send  that  in  quantities  regulated  by  the 
demand  for  it;  and  so  on  to  the  end.  No  matter 
whether  the  articles  be  one  or  many;  no  matter 
whether  the  trade  be  a  direct,  or  an  indirect,  trade ; 
the  profits  in  all  cases  will  depend,  first  upon  the 
ratio  of  the  cost  of  what  is  rendered  to  what  would 
otherwise  be  the  cost  of  that  received;  and  secondly, 
upon  the  relative  intensity  of  the  two  demands.  The 
greater  the  relative  efficiency  of  any  nation  in  pro- 
ducing an  article  of  export,  and  the  stronger  the 
demand  for  that  article  in  foreign  ports,  the  more 
profitable  does  the  trade  become  to  that  nation. 
The  precious  metals,  whether  produced  at  home,  or 
obtained  from  other  nations  by  another  series  of  ex- 
changes, stand  here  in  the  same  relations  as  other 
commodities,  and  are  frequently  the  most  profitable 
articles  that  a  nation  can  export.  The  terms  of  in- 
ternational exchanges,  then,  between  any  two  na- 
tions, are  so  adjusted,  as  to  equalize  the  demand  for 
their  respective  products,  and  cancel  the  debts  mutu- 
ally incurred. 

It  follows  from  all  this  by  a  necessary  inference, 
that  what  a  nation  purchases  by  its  exports,  it  pur- 
chases by  its  most  efficient  labor,  and  consequently 


360  ELEMENTS  OF  POLITICAL  ECONOMY. 

at  the  cheapest  possible  rate  to  itself.  Only  those 
things,  for  the  procuring  of  which  a  nation  possesses 
decided  advantages  relatively  to  other  nations,  and 
relatively  to  its  own  advantages  in  producing  directly 
what  is  received  in  return,  are  ever  exported ;  and 
hence,  the  return  cargoes,  no  matter  what  they  have 
cost  their  original  producers,  are  purchased  by  this 
nation  as  cheaply  as  if  they  had  been  produced  by  its 
own  most  advantageous  labor.  This  is  a  wholly  im- 
pregnable position,  and  the  advocates  of  restricting 
foreign  trade  are  challenged  to  try  their  hand  a  little 
at  its  defences. 

We  see  also,  at  this  point,  what  to  think  of  those 
people  who  deem  it  needful  that  each  nation  should 
be  able  to  "  compete  "  with  other  nations  in  every- 
thing. Why  are  not  these  people  consistent  enough 
to  apply  their  favorite  doctrine  of  "  competing "  to 
domestic  exchanges  also,  and  demand  that  the  cler- 
gyman shall  have  facilities  for  "competing"  with  the 
lawyer,  the  tailor  with  the  blacksmith,  the  farmer 
with  the  manufacturer,  the  publisher  with  the  author? 
Will  these  people  never  learn  that  all  exchanges,  do- 
mestic as  well  as  foreign,  depend  on  relative  supe- 
riority at  different  points,  and  that  a  nation  which 
should  try  to  make  its  success  in  production  equal  at 
all  points,  would  be  as  foolish  as  an  artisan  trying  to 
learn  and  practise  all  trades  at  once  ?  Suppose  the 
nation  to  succeed,  what  then?  It  would  supply  its 
wants  at  a  certain  average  efficiency  of  effort;  whereas, 
by  a  thorough  development  of  all  its  own  peculiar 
resources,  it  could  command  by  exchange  the  prod- 
ucts of  the  world  at  a  cost  not  exceeding  that  of  its 
own  most  productive  and  efficient  exertion.     In  one 


ON  FOREIGN  TRADE.  361 

word,  whatever  justifies  individuals  in  selecting  di- 
verse paths  of  production  according  to  their  capaci- 
ties and  opportunity,  the  same  justifies  the  nations 
in  fully  drawing  out  their  own  best  capabilities  under 
the  conditions  in  which  God  has  placed  them,  and 
then,  exchanging  what  costs  them  little  for  what 
would  otherwise  cost  them  much,  in  enjoying  all  that 
the  world  offers  at  the  least  expenditure  of  irksome 
effort.  Such  action  promotes  the  common  good  of 
all  the  nations,  and  makes  the  best  of  all  accessible 
to  all,  and  arms  each  with  the  power  of  all ;  while 
the  opposite  action,  by  lessening  the  diversities  of 
relative  advantage,  so  far  forth  incapacitates  all  for 
exchanges  which  are  at  once  profitable  and  stimu- 
lating. 

Closely  connected  with  the  one  just  cited,  is  an- 
other narrow  and  superficial  notion,  happily  less 
prevalent  now  than  formerly,  namely,  that  new  im- 
provements in  machinery,  or  other  enhanced  facili- 
ties of  production,  realized  in  any  nation,  are  a  dis- 
advantage to  other  nations  in  their  trade  with  that 
nation.  Let  us  examine  this  point.  Suppose  France, 
by  new  methods  of  silk  culture,  to  become  able  to 
make  the  silk  which  before  cost  $80  for  $50,  cottons 
in  France,  and  silk  and  cottons  in  England,  remain- 
ing in  natural  cost  as  before,  does  France  alone  gain 
the  entire  advantage  of  the  increased  cheapness  of 
silk  ?  We  will  see.  The  production  of  silk  in 
France  is  greatly  quickened  by  the  cheaper  meth- 
ods, more  is  produced,  more  is  carried  to  England  to 
buy  cottons  with,  but  at  the  old  rate  of  80  for  96 
the  English  will  not  take  any  more  silks,  and  the 
French,  who  can   now  abundantly   afford   it,  since 


362  ELEMENTS  OF  POLITICAL  ECONOMY. 

their  nominal  80  is  really  50,  will  offer  more  silks 
for  96  in  cottons,  in  order  to  tempt  a  brisker  and 
broader  sale.  They  offer,  say,  96  in  silks  for  96 
in  cottons,  and  if  that  reduction  of  value  of  silks  in 
cottons  be  enough  for  the  equalization  of  the  re- 
spective demands,  the  trade  will  go  on  on  that  basis, 
at  least  for  a  time ;  and  as  there  is  now  a  larger  dif- 
ference of  relative  advantage  than  before,  there  will 
be,  as  always  in  such  cases,  larger  profits  to  be 
divided  between  the  two  parties.  The  96  now 
offered  in  silks  to  the  English  is  really  only  60  in 
cost  to  the  French,  so  that  the  French  gain  in  the 
trade  is  largely  increased  ;  they  now  get  for  what 
costs  them  60  what  would  otherwise  cost  them  96, 
a  clear  gain  of  60  per  cent.  Before  the  new  meth- 
ods of  silk  culture  were  introduced  they  gained 
only  20  per  cent.  But  the  English  have  also  gained 
largely  by  the  ingenuity  and  diligence  of  their  neigh- 
bors. Before,  they  gained  only  20  per  cent,  in  the 
trade  at  best;  now  they  get  for  what  costs  them 
$100  that  which  otherwise  would  cost  them  $144, 
a  clear  gain  of  44  per  cent.  Indeed,  it  might  easily 
happen,  through  the  changes  in  international  de- 
mand, that  even  a  larger  share  of  the  benefit  of 
the  French  improvements  should  accrue  to  the 
English  than  to  the  French  themselves ;  the  share  of 
the  French  all  the  while  being  large,  and  much  lar- 
ger, than  if,  greedily  endeavoring  to  keep  all  the  ben- 
efit, they  refused  to  trade  at  all.  Thus  we  reach 
again,  from  another  outlook,  a  grand  doctrine  of 
exchange,  that  each  party  is  benefited  by  the  prog- 
ress and  prosperity  of  the  other.  The  only  way  in 
which  all  nations  can  share  in  the  benefits  of  the 


ON  FOREIGN  TRADE.  363 

thrift  and  enterprise  of  each  other,  is  through  mutual 
international  exchanges ;  and  when  each  nation  sees 
to  it  that  it  has  a  few  commodities  at  least  for  which 
there  is  a  strong  demand  among  foreigners,  and  in 
the  production  of  which  themselves  have  a  strong 
superiority,  it  may  rest  assured  that  it  buys  all  it 
buys  from  abroad,  gold  included,  at  the  cheapest  rate 
to  itself,  and  shares  a  part  of  the  prosperity  of  every 
nation  with  which  it  trades. 

It  is  now  time  to  look  at  the  cost  of  carriage,  thus 
far  allowed  to  sink  out  of  sight  for  the  sake  of  greater 
simplicity  of  view.  This  is  an  important  element  in 
international  exchanges,  and  one  which  must  not  be 
neglected,  although  Mr.  Carey  unduly  enlarges  upon 
it  with  a  view  to  prejudice  a  free  exchange.  Cer- 
tainly, it  costs  something  to  carry  any  goods  abroad, 
and  to  bring  back  a  return,  and  w^e  may  be  assured 
that  if  such  return  goods  could  be  procured  as  cheaply 
without  incurring  such  expense,  the  expense  would 
never  be  incurred.  The  fact  that  all  expenses  con- 
nected with  carriage  are  gladly  borne  by  the  mer- 
chants who  carry  on  the  trade,  shows  that  the  gains 
of  the  trade  are  so  great  as  not  only  to  pay  freights 
and  insurance,  but  also  to  leave  a  good  margin  for 
profits.  Mr.  Carey  does  not  get  around  this  stubborn 
fact.  What  use  is  it  to  pile  up  calculations  to  show 
that  the  expenses  incurred  in  carriage,  if  applied  to 
production  at  home,  would  secure  as  good  goods  and 
more  of  them  ?  If  they  would,  why  don't  they  ? 
Have  n't  men  common  sense  ?  Is  n't  self  interest  a 
tolerably  strong  motive-power?  Is  it  needful  to  in- 
voke the  mighty  arm  of  law  to  compel  men  to  act  in 
accordance   with    their    pecuniary   interests  ?       Mr. 


864  ELEMENTS  OF  POLITICAL  ECONOMY. 

Carey  would  restrict  foreign  trade,  because  it  costs 
so  much  to  carry  on.  Is  that  wise,  provided  the  gains 
after  all  largely  overbalance  the  cost  ?  If  they  did 
not  overbalance  it,  would  the  trade  go  forward  ?  If 
the  cost  be  large,  as  it  is,  that  is  a  good  reason  to 
desire  its  reduction,  if  possible;  to  labor  for  increased 
facilities  of  transportation,  for  cheaper  freights,  and 
better  rates  of  insurance ;  but  to  argue  for  forcibly 
stopping  a  trade  by  legal  enactment,  because  it  costs 
those  so  much  who  freely  undertake  to  carry  it  on, 
does  not  strike  me,  and,  I  believe,  will  not  strike  my 
readers,  as  a  sound  argument.  Which  nation,  a 
party  in  foreign  trade,  pays  the  costs  of  carriage  ? 
Or  does  each  pay  them  in  equal  proportion  ?  The 
aggregate  cost  of  transportation  to  the  foreign  mar- 
ket is  so  much  added  to  the  cost  of  production,  and 
is  a  deduction  of  so  much  from  what  would  other- 
wise be  the  whole  gain  of  the  exchange ;  but  it  is 
not  true  that  each  party  necessarily  pays  the  whole 
of  his  own  freights,  and  therefore,  that  the  party 
carrying  bulky  articles  is  at  a  disadvantage  compared 
with  the  other.  He  may  or  may  not  be  at  a  disad- 
vantage. That  will  depend  on  the  effect  of  the  new 
expense,  however  divided,  on  the  demand  in  the 
respective  countries.  Suppose,  that  in  the  outset 
England  pays  the  whole  cost  of  carrying  cottons  to 
France,  and  France  the  whole  cost  of  sending  the 
silks  to  England;  but  as  cottons  are  many  times 
more  bulky  than  silks  proportionably  to  value,  a 
larger  bill  of  freights  would  fall  to  England ;  and 
cottons  would  therefore  fall  relatively  to  silks ;  but 
cottons  and  silks  both  have  risen  absolutely,  that  is, 
with  reference  to   a  given   effort,  or  with  reference 


ON  FOREIGN  TRADE.  365 

to  a  money  standard.  Suppose  that  France,  in- 
stead of  80  for  96,  now  has  to  give  82  for  96,  and 
England,  instead  of  100  for  120  now  has  to  give 
105  for  120.  The  French  gain  in  the  trade  is  re- 
duced by  cost  of  carriage  from  20  per  cent,  to  nearly 
18,  and  the  English  gain  from  20  per  cent,  to  nearly 
14  ;  but  it  is  by  no  means  certain  that  the  trade 
would  go  on  on  these  terms ;  the  enhanced  price  of 
silks  might  well  deaden  the  demand  for  them  in 
England,  more  1;han  the  relatively  less  enhanced 
price  of  cottons  in  France  would  affect  the  demand 
for  them.  Silks  have  risen  in  England  5  per  cent, 
but  cottons  have  risen  in  France  only  2j  per  cent. ; 
it  is  therefore  every  way  likely  that  thereafter  the 
demand  for  cottons  will  be  stronger  than  the  de- 
mand for  silks,  and  if  so,  the  French  will  have  to 
offer  better  terms,  or,  what  is  the  same  thing,  be 
obliged  to  pay  a  part  of  the  English  freights  ;  so 
that  there  is  nothing  in  the  true  state  of  the  case 
to  justify  the  conclusion  jumped  at  by  some  people 
that  they  who  carry  heavy  goods  are  at  a  disad- 
vantage compared  with  those  who  carry  light  goods. 
That  will  depend  on  the  equation  of  international 
demand.  Nothing  in  the  nature  of  things  hinders, 
that  each  party  shall  in  effect  pay  the  freights  of 
the  other,  or  one  even  really  pay  the  freights  of 
both. 

These,  then,  are  the  essential  principles  of  foreign 
trade,  brought  out,  it  is  hoped,  as  clearly  and  con- 
secutively as  the  relative  and  complicated  nature 
of  the  transactions  will  allow  ;  and  in  the  light  of 
these  principles  it  is  very  clear  that  foreign  trade  is 
just  as  legitimate  as  domestic  trade  ;  that  it  rests  on 


366  ELEMENTS   OF  POLITICAL  ECONOMY. 

the  same  ultimate  principles  in  the  constitution  of 
man  and  in  the  providential  arrangements  of  Nature ; 
that  the  profit  of  it  is  mutual  to  both  parties,  or  it 
would  never  come  into  being,  or,  coming  into  being, 
would  cease  of  itself;  that  to  prohibit  it,  or  restrict 
it,  otherwise  than  in  the  interest  of  morals,  health,  or 
revenue,  must  find  a  justification,  if  at  all,  outside  the 
pale  of  Political  Economy  ;  that  to  say  to  any  body 
of  men  who  wish  to  render  purely  commercial  ser- 
vices to  foreigners,  to  receive  back  similar  services  in 
return,  that  such  services  shall  neither  be  rendered 
nor  received,  is  not  only  to  destroy  a  certain  gain, 
but  also  to  interfere  with  a  natural  and  inalienable 
right. 

Unfortunately,  the  old  mercantile  system,  which 
was  so  wise  as  to  believe  that  gold  and  silver  were 
the  only  objects  of  real  value,  taught  also,  in  coinci- 
dence with  its  fundamental  belief,  that  foreign  trade 
ought  to  be  so  regulated  and  restricted  as  to  bring 
in  the  largest  possible  quantity  of  the  precious  met- 
als ;  that  each  nation  ought  to  sell  much  and  buy 
little  in  order  to  grow  rich  ;  that  bounties  ought  to  be 
given  to  exporters  to  encourage  them  to  sell,  and 
prohibitions  laid  upon  importers  to  prevent  their  buy- 
ing; and  that  the  introduction,  through  exchange 
with  foreigners,  of  articles  which  might  be  produced 
at  home,  should  be  by  all  means  prevented  by  law, 
no  matter  what  advantages  for  producing  them  for- 
eigners might  have,  or  what  advantages  the  nation 
itself  might  have  in  producing  that  which  the  foreign- 
ers would  be  glad  to  take  in  exchange.  The  mer- 
cantile system  as  such,  is  long  ago  dead  and  buried, 
but  it  has  left  one  of  its  progeny  behind  it,  of  no 


ON  FOREIGN  TRADE.  367 

better  birth  than  its  parent,  which  has  not  yet  found 
its  predestined  death  and  burial.  This  is  the  doc- 
trine sometimes  euphoniously  and  courteously  de- 
nominated Protection  to  Native  Industry,  a  designa- 
tion however  not  in  the  least  indicative  of  its  real 
nature.  This  doctrine,  now  utterly  expelled  from 
England  and  Germany,  still  lingers  feebly  in  some 
other  parts  of  Europe,  and,  though  steadily  declining 
in  the  United  States,  is  still  strong  enough  here  to 
control  the  present  national-legislation.  It  has  been 
reinforced,  of  late  years,  by  the  very  respectable 
authority  of  Mr.  Carey,  some  of  whose  points  will  be  , 
considered  in  the  sequel;  and  by  one  or  two  other 
persons  whose  opinions  are  entitled  to  a  respectful 
consideration  ;  and  the  prevalence  of  the  doctrine  in 
the  popular  mind,  particularly  in  New  England,  is 
still  such  that  I  deem  it  useful  to  examine  the  topic 
at  some  length,  preferring  to  do  so  in  the  way  of 
replying  to  the  main  objections  urged  against  the 
opposite  doctrine  of  a  free  commerce,  especially  as 
Protection  so  called  acts  at  present  wholly  on  the 
defensive.  Some  of  the  objections  are  of  a  popular 
character,  and  I  shall  feel  at  liberty  to  subject  them 
to  a  popular  refutation  ;  while  such  as  profess  to  be 
scientific,  will,  it  is  hoped,  be  met  by  a  scientific 
method  at  least  equal  to  their  own. 

It  may  be  proper  to  mention  at  the  outset,  to 
avoid  misapprehension,  as  a  matter  purely  personal, 
that  I  have  no  prejudices  in  favor  of  Free  Trade.  I 
was  brought  up  in  the  old  Whig  school,  and  accus- 
tomed from  my  boyhood  to  hear  and  to  repeat  the 
current  arguments  in  favor  of  what  is  called  Pro- 
tection.    I  remember  with  perfect  distinctness  the 


368  ELEMENTS  OF  POLITICAL  ECONOMY. 

Presidential  campaign  of  1840,  in  which  this  was  a 
main  plank  of  the  platform ;  and  when,  ten  years 
later,  as  a  student,  I  commenced  to  study  Political 
Economy,  I  supposed  that  a  protective  tariff  was  a 
corner-stone  of  commercial  prosperity.  A  careful 
study  of  the  principles  of  this  science,  with  a  noting 
of  the  records  of  experience  in  the  premises,  and 
nothing  else,  has  convinced  me,  as  thousands  have 
been  convinced  before  and  since,  that  the  doctrine 
of  Protection  is  based  wholly  upon  the  fallacies  of 
the  Mercantile  System ;  and  since  these  fallacies 
have  been  abundantly  exposed,  no  logical  ground  is 
left  for  a  doctrine  of  restriction  and  prohibitions. 
And  it  is  worth  while  to  notice,  in  passing,  how 
much  the  doctrine  in  question  has  gained  by  the 
use  of  the  very  attractive  word  "  Protective."  This 
word,  so  agreeable  to  our  minds  from  its  association 
with  security  of  person  and  property,  is  not  properly 
descriptive  of  the  system.  The  system  is  one  of 
restraint  and  prohibition,  and,  of  necessity,  so  far  as 
it  is  applied,  both  diminishes  in  amount  the  com- 
merce of  the  world,  and  diverts  it  from  its  own 
freely  chosen  channels.  If  the  correct  but  prosy 
epithets  "  restrictive,"  "  prohibitory,"  had  been  ap- 
plied to  the  doctrine,  instead  of  the  less  accurate 
but  agreeable  "  protective,"  the  hold  of  the  doctrine 
itself  upon  the  general  mind  would^  I  imagine,  have 
been  far  less  tenacious.  Let  us  remember  that  a 
word  never  yet  changed  the  essential  nature  of 
anything. 

The  first  main  distinction  to  which  I  call  atten- 
tion, is  that  between  a  protective  tariff  and  a  rev- 
enue  tariff.      Upon   this   point   a   great    confusion 


ON  FOEEIGN   TRADE.  369 

exists  in  the  common  mind.  It  is  not  at  all  the 
doctrine  of  Free  Trade  that  no  duties  shall  be  laid 
upon  imported  goods.  Duties  ought  to  be  laid  upon 
imported  goods,  because  that  is  a  convenient  and 
unexceptionable  mode  of  raising  a  part  of  the  taxes 
by  which  government  is  supported.  Very  high  du- 
ties may  be  properly  laid  upon  luxuries  that  are 
imported,'  such  as  wines  and  plate,  for  example, 
because  they  who  buy  such  things  are  able  to  pay 
liberally  for  the  support  of-  the  government.  Free 
Trade  has  nothing  to  object  to  any  duties  that  are 
laid  with  a  simple  view  to  equitable  taxation.  A 
tariff  for  revenue,  therefore,  as  a  mode  of  taxing  the 
people  for  the  support  of  the  government,  a  tariff 
honestly  adjusted  for  that  purpose,  has  nothing 
whatever  in  conflict  with  the  broadest  doctrine  of 
Free  Trade.  England,  for  example,  which  has 
adopted  a  complete  system  of  freedom  in  her  for- 
eign commerce,  still  levies  duties  on  imports,  and 
will  continue  to  do  so,  for  purposes  of  revenue 
merely.  She  raises  on  the  average  about  thirty- 
five  per  cent,  of  her  aggregate  revenue  from  this 
source. 

But  the  idea  of  a  protective  tariff  is  totally  differ- 
ent. Here  duties  are  laid  upon  foreign  commodities, 
so  high,  as  either  to  exclude  them  altogether,  and 
thus  give  the  domestic  manufacturer  or  grower  the 
complete  monopoly  of  the  home  market;  or,  if  the 
duty  be  not  so  high  as  to  be  entirely  prohibitory,  it 
is  made  high  enough  to  raise  the  price  of  the  for- 
eign article  to  the  point  at  which  the  home  manu- 
facturer is  desirous  of  selling  his  own.  The  effect 
that  is  designed,  and  that  actually  follows,  is  to  raise 

24 


370      ELEMENTS  OF  POLITICAL  ECONOMY. 

the  price  to  all  consumers,  in  order  that  a  factitious 
advantage  may  accrue  to  certain  home  manufac- 
turers. When  most  successful,  the  effect  is  to  trans- 
fer money  from  the  pockets  of  all  consumers,  to  the 
pockets  of  a  few  manufacturers.  I  do  not  stop  at 
this  point  to  demonstrate  the  economical  folly  of 
this,  my  object  now  being  to  show  the  idea  that 
always  underlies  protective  duties.  We  have  seen 
already  in  the  first  chapter,  and  shall  recur  to  the 
subject  in  the  next,  how  the  doctrine  of  protection 
grew  immediately  out  of  the  Mercantile  System,  the 
so  called  "  Balance  of  Trade."  Restrictive  duties 
have  never  been  laid  in  any  age  or  country  except 
for  the  purpose  of  securing,  either  a  more  favorable 
"balance  of  trade,"  or  else  certain  supposed  advan- 
tages to  home  manufacturers  or  growers. 

Now,  the  interesting  question  arises,  which  has 
been  much  agitated  in  this  country,  whether  these 
two  ideas  of  revenue  and  protection,  which  are  so 
distinct  and  apparently  incompatible,  can  be  com- 
bined together?  Whether  a  revenue  tariff" can  be  so 
adjusted  as  to  afford  incidental  protection?  De- 
feated as  a  general  theory,  and  no  longer  able  to 
stand  upon  its  own  merits,  Protection,  in  this  coun- 
try, only  asks  the  privilege  of  leaning  upon  revenue. 
It  is  conceded  that  Protection  for  Protection's  sake 
is  improper ;  but  it  is  claimed  that  there  is  no  harm 
in  having  as  much  protection  as  may  incidentally 
result  from  a  tariff  framed  for  revenue.  This  shows 
how  the  general  doctrine  of  Protection  has  declined, 
and  seeks  at  last  a  compromise  with  freedom.  There 
is  no  sound  basis  for  such  compromise;  and  why? 
Because  revenue  is  only  received  on  those   goods 


ON  FOREIGN  TRADE.  371 

that  come  in,  and  protection  is  only  secured  when 
the  goods  are  kept  out.  You  get  no  revenue,  except 
as  you  let  the  things  in ;  you  get  little  protection 
except  as  you  keep  the  things  out.  The  two  ideas 
are  opposite  and  incompatible;  one  cannot  ration- 
ally combine  them;  a  revenue'  tariff* with  incidental 
protection  is  a  solecism.  But  it  may  be  said,  that  a 
moderate  duty  that  shall  lessen,  but  not  prevent 
importation,  will  raise  the  price  of  the  foreign  arti- 
cle, and  thus  enable  the  home  manufacturer  to 
realize  the  same  price.  This  is  true.  But  just  look 
at  it.  The  government  gets  a  revenue  only  on  that 
part  that  is  imported;  the  high  price  has  to  be  paid 
upon  all  that  is  consumed.  The  government  makes 
the  people  pay  much,  in  order  that  the  treasury  may 
receive  little.  I  think  that  that  is  no  desirable  way 
of  raising  a  revenue. 

It  follows,  that  the  principles  on  which  a  revenue 
tariff  should  be  framed  are  very  different  from  those 
that  should  rule  in  protective  tariffs.  If  the  object 
be  revenue,  the  duties  should  be  low^,  so  as  not  to 
discourage  importation,  or  very  sensibly  increase 
prices.  Low  duties  on  all  imports,  except  high- 
priced  foreign  luxuries,  which  are  used  only  by 
the  rich,  and  which  may  be  taxed  heavily  without 
discouraging  importation,  will  infallibly  yield  the 
largest  aggregate  revenue.  The  reason  for  this  is, 
that  society  is  like  a  pyramid  standing  on  its  broad- 
est base :  each  horizontal  section  of  it  is  more  ex- 
tended than  the  one  above  it.  So  in  society :  the 
number  of  those  able  to  purchase  an  article  at  five 
dollars,  is  more  than  twice  as  numerous  as  those 
able  to  purchase  it  at  ten ;  and  those  who  are  able 


372  ELEMENTS  OF  POLITICAL  ECONOMY. 

to  buy  it  at  one  dollar  are  probably  more  than  ten 
times  as  many  as  those  who  would  buy  it  at  five 
dollars.  The  official  list  of  incomes  for  the  year 
1864,  in  the  Tenth  District  of  Massachusetts,  lies  be- 
fore me,  and  selecting  one  town  at  random,  I  find  in 
its  list  one  income  over  $40,000,  three  over  $30,000, 
seven  over  $20,000,  nine  over  $10,000,  thirteen  over 
$5000,  twenty-nine  over  $2000,  and  seventy-eight 
over  $1000.  A  lower  duty,  therefore,  on  any  article 
is  likely  to  bring  it  within  the  reach  of  a  much  wider 
circle  of  consumers;  and  for  many  to  pay  a  low  duty 
is  better  for  the  revenue  than  for  a  few  to  pay  a  high 
duty.  Of  course,  the  exact  limitations  must  be 
found  out  by  experience;  but  Alexander  Hamilton 
long  ago,  in  one  of  the  papers  of  "  The  Federalist," 
called  attention  to  the  fact  in  this  connection,  that 
a  large  multiplier  will  not  of  itself  make  a  large  prod- 
uct. The  multiplicand  is  also  a  factor.  During  the 
late  high  prices,  I  was  told  by  a  prominent  mer- 
chant, that  the  people  not  only  did  not  buy  as  much 
tea  as  formerly,  but  also  that  they  did  not  spend 
as  many  dollars  for  tea  as  when  the  article  was 
cheaper. 

As  between  foreign  nations,  an  interesting  experi- 
ment is  now  going  forward  under  the  treaty  of  com- 
merce between  France  and  England.  In  1861,  this 
principle  of  low  duties  w^as  embodied  in  the  mutual 
tariffs  of  the  two  nations,  and  the  results  thus  far 
have  delighted  the  friends  and  confounded  the  ene- 
mies of  a  free  commerce.  Not  only  has  the  amount 
of  commodities  exchanged  prodigiously  increased, 
but  the  increase  of  the  revenue  for  England  on  the 
imports  from  France  for  the  first  three  months  of  the 


ON  FOREIGN  TRADE.  373 

new  system,  over  the  corresponding  quarter  of  the 
previous  year,  was  $1,430,000 ;  and  the  increase  for 
France  on  the  imports  from  England  for  the  same 
three  months,  $7,382,000.  Thus  do  facts  corrobo- 
rate principles,  and  make  us  sure  that  we  stand  upon 
the  rock. 

(1.)  I  shall  now  attempt  to  answer  some  objec- 
tions. One  of  the  most  common  of  these  has  been, 
that  Free  Trade  is  a  theory:  "It  is  all  very  well 
in  theory,  bat  it  will  not  work  in  practice";  as  if 
there  could  be  a  good  theory  that  worked  ill  in  prac- 
tice !  A  theory  that  does  not  work  in  practice  is  a  bad 
theory.  That  is  the  very  way  we  determine  whether 
a  theory  is  good  or  bad,  —  Does  it  correspond  with 
facts,  —  does  it  work  well  when  applied  ?  If  it  does 
not,  it  is  condemned,  it  is  worthless.  There  is  a  pal- 
pable sophism  in  this  expression,  "  Good  in  theory, 
bad  in  practice."  What  makes  a  theory  good? 
Simply  because  it  corresponds  with  and  explains 
the  facts.  Newton's  theory  of  gravitation  is  a  good 
theory  on  this  ground,  and  no  other.  If  a  man  ob- 
jects to  any  theory,  let  him  bring  facts,  principles, 
any  truth  whatever,  to  disprove  it,  and  he  shall  be 
welcome;  but  don't  let  him  delude  himself  and 
others  by  supposing  that  he  can  concede  the  theory 
to  be  good,  and  then  save  himself  on  the  practice. 
A  theory  is  good  because  it  is  good  in  practice,  and 
for  no  other  reason. 

There  have  been  so  many  unfounded  theories 
broached  on  all  subjects,  that  the  term  has  fallen 
into  some  reproach,  and  it  is  for  this  reason  that 
the  charge  is  brought  against  Free  Trade,  of  being  a 
theory :    but   there   is   nothing   in   the   world   more 


374  ELEMENTS  OF  POLITICAL  ECONOMY. 

respectable  than  a  good  theory  proved  by  solid  argu- 
ments and  verified  by  facts.  I  am  prepared  to  show, 
however,  that  the  charge  of  being  a  theory  falls  with 
far  greater  force  against  the  doctrine  of  protection 
than  against  the  doctrine  of  freedom.  Free  Trade 
can  hardly  be  said  to  be  a  theory  at  all.  It  is  the 
natural  state  of  things.  If  you  and  I  wish  to  ex- 
change commodities  for  our  mutual  benefit,  there  is 
no  theory  or  doctrine  in  the  premises;  we  exchange, 
and  that  is  the  whole  of  it.  If  a  Massachusetts 
fisherman  wishes  to  exchange  his  dried  cod  with  a 
West  India  sugar  planter,  and  the  trade  is  mutually 
beneficial,  what  theory  is  involved?  They  exchange, 
each  is  richer  than  before,  and  that  is  the  whole 
of  it. 

If  now  some  one  steps  in  between  you  and  me, 
or  between  the  fisherman  and  the  planter,  and  says, 
"  You  shall  not  trade ! "  he  is  bound  to  tell  the 
reason  why.  The  burden  lies  upon  him.  Let  him 
bring  forward  his  theory  of  restriction,  and  justify 
it.  Let  us  hear  the  arguments  and  see  the  grounds 
that  justify  the  prohibition  of  an  advantageous 
trade!  You  see  the  burden  of  proof  lies  upon  the 
advocates  of  restriction.  It  is  the  advocates  of  re- 
striction that  drag  in  a  theory  which  interrupts  the 
play  of  natural  laws, — which  says  to  men  who  wish 
to  trade,  "  You  shall  not  trade!"  Commerce  is  no 
game  of  grab,  of  fraud,  of  overreaching.  Its  ben- 
efits are  reciprocal  and  mutual;  otherwise  there 
would  be  no  commerce.  The  freights  of  the  navi- 
gating interest,  and  the  gains  of  the  merchants,  are 
but  a  very  small  part  of  the  benefits  of  commerce ; 
the  variety  of  commodities  and  of  comforts  which 


ON  FOREIGN  TRADE.  375 

every  commercial  nation  enjoys,  Ijy  exchanging  its 
own  surplus  products  for  the  surplus  products  of  its 
neighbors,  is  the  substantial  advantage  of  trade. 
When  now  this  beneficial  interchange  is  going  for- 
ward, or,  if  the  artificial  barriers  were  thrown  down, 
would  be  going  forward,  w^ho  is  he  that  takes  upon 
him  to  curtail  and  to  prohibit  it?  Who  is  he  that 
thinks  himself  competent  to  manipulate  the  un- 
changing laws  of  trade? 

It  is  conceded  by  everybody  that  a  free  exchange 
of  commodities  within  the  same  country  is  highly 
beneficial:  what  makes  it  suddenly  cease  to  be  bene- 
ficial as  between  foreign  countries?  Does  the  mu- 
tual benefit  of  an  exchange  depend  upon  the  accident 
that  the  parties  to  it  are  citizens  or  subjects  of  the 
same  government?  The  south  end  of  Vermont 
trades  freely  and  advantageously  with  its  neighbors 
across  the  line  in  Massachusetts;  is  there  any  good 
reason  why  the  north  end  of  Vermont  should  not 
trade  just  as  freely  and  advantageously  with  its 
neighbors  across  the  line  in  Canada?  These  are 
questions  which  the  theory  of  protection,  in  my 
opinion,  cannot  satisfactorily  answer. 

(2.)  I  pass  to  a  second  current  objection,  namely, 
that  if  we  admit  foreign  goods  freely,  we  thereby 
employ  the  labor  of  foreigners,  and  so  far  diminish 
the  wages  of  our  own  laborers.  Let  us  see  if  this 
is  so.  Foreign  articles  are  certainly  wrought  by  for- 
eign labor;  do  we,  then,  by  buying  them  employ 
foreign  labor,  to  the  prejudice  of  our  own  laborers? 
We  are  obliged  to  pay  for  everything  we  buy, — 
are  we  not?  In  what  do  we  pay?  Clearly,  in  the 
products  of  our  own  labor.     We   employ  our  own 


376  ELEMENTS  OF  POLITICAL  ECONOIVIY. 

laborers  to  produce  the  articles  which  we  exchange 
for  foreign  articles.  We  pay  for  our  imports  by  our 
exports.  Our  exports  are  created  by  home  labor, 
and  the  only  possible  way  for  us  to  obtain  the 
results  of  foreign  toil,  is  to  offer  in  exchange  the 
results  of  domestic  toil.  A  commercial  nation,  there- 
fore, not  only  does  not,  but  it  cannot  employ  foreign 
labor.  The  more  it  buys  of  foreigners,  the  more 
home  labor  it  must  employ  to  create  the  articles 
with  which  it  pays  for  what  it  buys.  We  must 
remember  that  the  exports,  taking  the  years  together, 
must  and  do  balance  the  imports.  Free  Trade, 
therefore,  can  by  no  possibility  discourage  home 
labor,  or  diminish  the  wages  of  laborers ;  and,  as  a 
matter  of  fact,  labor  is  best  rewarded,  other  things 
being  equal,  in  the  freest  commercial  countries. 

I  deem  it  important  thoroughly  to  demolish  this 
objection,  for  it  has  been  considered  the  stronghold 
of  the  advocates  of  Protection.  I  admit  that  a  pro- 
tective tariff  may  stimulate  a  certain  branch  of  man- 
ufacture, may  concentrate  capital  in  it,  may  call 
laborers  into  it,  and  even  for  a  time  increase  the 
wages  of  those  laborers.  But  competition  will  very 
speedily  reduce  wages  in  that  department  to  the 
average  level  in  other  departments,  and  unless  it 
can  be  shown  that  restriction  increases  the  general 
wages-fund  of  a  country,  —  that  fund  that  is  set 
apart  for  the  payment  of  labor,  —  it  is  in  vain  to 
claim  that  it  can  increase  the  general  wages  of  labor. 
Capital  and  laborers  may  indeed  be  withdrawn  from 
one  employment  to  another  by  artificial  stimulus, 
but  is  there  any  general  gain  in  that  ?  While  the 
one  is  stimulated,  is   not  the    other   depressed  ?     I 


ON  FOREIGN  TRADE.  377 

have  seen  upon  the  ocean  the  wind  blow  up  a  wave, 
but  I  always  noticed  a  depression  behind  it.  The 
general  level  of  the  ocean  is  not  raised,  however 
high  the  waves  rise. 

Now  how  can  the  free  interchange  of  commodities 
lessen  the  demand  for  labor  or  the  rewards  of  labor? 
You  are  employing  a  hundred  men.  You  wish  to 
obtain  a  certain  quantity  of  cutlery.  Does  it  make 
any  difference  to  you  or  to  the  wages  of  your  men, 
whether  you  employ  them  directly  in  making  the 
cutlery,  or  in  making  buttons  with  which  you  can 
purchase  the  cutlery  from  abroad?  If,  by  employ- 
ing them  in  making  buttons  you  can  purchase  more 
and  better  cutlery,  (and  if  you  cannot,  there  is  no 
temptation  to  an  exchange,)  is  it  not  plain  to  reason 
that  it  is  better  for  you,  and  that  you  can  afford  to 
pay  them  better  wages,  than  if  you  employed  their 
labor  less  effectively  directly  upon  cutlery  ?  This  is 
but  an  instance,  but  it  involves  the  principle.  There 
is,  there  can  be  no  discouragement  to  domestic  labor 
in  the  freest  international  exchanges.  Every  foreign 
purchase  necessitates  the  employment  of  domestic 
labor  to  create  that  with  which  the  purchase  is 
made,  thereby  enlarging  the  demand  for  laborers, 
and  thus  tending  to  increase  their  wages.  The  ten- 
dency of  Free  Trade  is  directly  the  reverse  of  that 
alleged  in  the  objection  ;  because  the  varied  objects 
of  use  and  elegance  offered  to  our  desires  by  inter- 
national commerce,  stimulate  labor  to  create  that 
with  which  to  buy  them. 

We  know  now  how  to  answer  those  who  say,  that 
if  we  should  trade  freely,  with  England,  for  exam- 
ple, we  should  bring  down  wages  in  this  country  to 


878      ELEMENTS  OF  POLITICAL  ECONOMY. 

the  English  standard.  This  is  too  hollow  a  bug- 
bear to  frighten  sensible  people  any  longer.  To  say 
nothing  of  the  principles  just  explained,  and  others 
equally  conclusive,  that  combine  to  scout  it,  the 
facts  in  the  case  would  seem  to  settle  the  whole 
question.  We  have  traded  with  England  for  eighty 
years,  largely,  increasingly,  and  from  1846  to  1861, 
almost  freely,  and  yet  wages  have  been  constantly 
rising  in  America,  and  never  stood  at  a  higher  figure 
than  when  the  Morrill  Tariff  was  passed  in  1861. 

(3.)  But  if  the  doctrine  of  Protection  be  so  false, 
and  have  no  single  solid  argument  in  its  support,  why 
have  so  many  nations  acted  on  it,  so  many  great 
men,  among  others,  Daniel  Webster,  believed  in  it? 
This  objection  I  am  bound  to  notice,  for  it  has  had 
no  small  influence.  To  estimate  its  force  rightly, 
two  things  must  be  remembered  :  first,  that  the  doc- 
trine of  protection  is  an  inheritance  from  the  remote 
past,  an  outgrowth  from  a  confessedly  false  dogma, 
which,  being  then  universally  received  and  acted  on 
by  the  nations,  has  given  this,  one  of  its  corollaries, 
whatever  validity  custom  and  prescription  can  give ; 
and,  secondly,  that  there  has  always  been  a  rich  and 
influential  class  of  men  in  the  commercial  countries 
who  have  supposed  that  their  interests  were  sub- 
served by  the  practical  application  of  the  doctrine. 
In  respect  to  Daniel  Webster,  the  first  great  speech 
which  he  made  in  Congress,  a  speech  that  foreshad- 
owed his  great  fame,  was  delivered  in  1814  on  the 
tariff.  It  was  a  free  trade  speech  throughout,  une- 
quivocal and  complete  in  its  advocacy  of  commercial 
freedom.  There  he  stood,  in  the  pride  of  early  man- 
hood, impregnable.     If  he  left,  fourteen  years  later, 


ON  FOREIGN  TRADE.  379 

this  high  ground  of  truth  and  principle,  to  occupy 
the  lower  ground  of  what  he  deemed  expedient,  it 
was  because  the  hostility  of  the  South  to  the  grow- 
ing commerce  of  the  North  contributed  to  bring 
upon  the  nation  a  high  restrictive  tariff,  and  Northern 
capital,  thus  prohibited  the  seasj  embarked  in  exten- 
sive manufactures;  and  then  the  South,  jealous  again, 
proposed  to  reverse  its  policy  and  abolish  the  induce- 
ments under  which  this  capital  had  been  embarked. 
It  was  thus  that  Mr.  Webster  became  the  champion 
of  manufacturing  interests  which  he  deemed  were 
unjustly  and  factiously  attacked.  He  never  justified 
restriction  as  a  principle ;  his  commercial  instincts 
were  too  strong  for  that ;  he  always  attempted  to 
justify  his  course  by  peculiar  and  factitious  circum- 
stances ;  almost  half  of  his  congressional  life  had 
passed  away,  before  he  could  be  brought  to  vote  for 
levying  high  duties;  and  although  he  afterwards 
brought  forward,  in  defence  of  the  position  thus 
assumed,  arguments  which  Political  Economy  pro- 
nounces unsound,  and  although  there  doubtless  min- 
gled in  with  his  motives  a  desire  to  gratify  power- 
ful constituents  and  friends  who  were  directly  inter- 
ested in  high  duties,  there  is  abundant  reason  to 
believe  that  his  defection  from  sound  principles  was 
never  so  radical  as  has  been  commonly  supposed. 

It  is  not  difficult  to  see  why  there  have  always 
been  so  many  advocates  of  the  system  of  restriction. 
It  is  an  old  system.  It  is  a  system  some  of  the  argu- 
ments for  which  are  superficially  plausible.  Above 
all,  it  is  a  system  which  many  enterprising  and  pros- 
perous men  have  considered  as  essential  to  their 
pecuniary  interests ;  and  when  such  men  demand  a 


380  ELEMENTS   OF  POLITICAL  ECONOMY. 

champion,  eloquence  and  arguments  are  never  long 
wanting.  As  a  matter  of  fact,  the  legislation  of 
the  world  has  been  largely  controlled  by  such  men, 
and  that  too,  not  always  in  the  interest  of  the 
masses.  It  is  more  than  doubtful  whether  man- 
ufacturers as  a  whole  class  have  ever  been  perma- 
nently benefited  by  protective  duties,  or  rather,  it  is 
certain  that  they  have  not  been  ;  but  they  have  sup- 
posed that  they  were,  and  some  of  them  have  been, 
prodigiously  benefited  ;  and  they  have  acted,  and  are 
acting,  on  that  supposition,  and  the  power  of  such 
men  over  public  opinion  is  very  considerable.  As  a 
class,  they  are  intelligent  and  rich,  and  can  easily 
combine  to  influence  opinion  and  legislation.  But 
even  if  they  were  benefited,  as  a  whole,  by  protective 
duties,  what  sort  of  justice  is  it  to  take  money  out 
of  my  pocket  and  put  it  into  theirs?  I  object  to  that. 
My  mickle,  and  your  mickle,  and  our  neighbor's 
mickle  will  make  a  very  pretty  muckle, —  a  small 
tax  on  all  consumers  of  protected  goods  will  reach  a 
very  handsome  sum;  but  what  valid  claim  can  the 
manufacturers  lay  to  it?  They  are  a  very  deserving 
class,  and  consequently  prosperous ;  but  it  may  be 
respectfully  submitted  that  they  do  not  need  unequal 
legislation  in  their  behalf.  They  are  not  a  needy  gen- 
eration, but  are  well  to  do.  The  list  of  incomes  on 
which  a  United  States  tax  is  paid,  now  annually  pub- 
lished throughout  the  country,  puts  this  fact  beyond 
the  shadow  of  question.  In  most  sections  of  New 
England,  they  are  the  only  men  of  large  incomes. 
Now,  it  is  no  objection  to  these  excellent  men  that 
they  are  rich,  and  getting  richer;  they  are  rather 
deserving  of  all  honor  for  their  enterprise  and  vigor 


ON  FOREIGN  TRADE.  381 

and  success  ;  but  it  is  conclusive  on  this  point,  that 
they  no  longer  need,  even  if  they  ever  needed,  any 
special  protection  from  the  government.  Let  them 
stand  on  the  same  level  of  advantage  with  other  men, 
let  them  enjoy  no  unequal  privileges,  and  everybody 
will  rejoice  in  their  prosperity.-  At  present,  they 
occupy  a  false  position,  fatal  to  their  own  genuine 
self-respect,  and  to  the  hearty  congratulations  of  their 
fellow-citizens.  By  far  the  larger  part  of  the  indus- 
trial interests  of  the  country  have  no  special  protec- 
tion at  the  hands  of  government;  and  is  it  possible 
that  these  shrewd  and  able  men  who  own  and  run 
mills  and  foundries,  are  willing  to  acknowledge  they 
alone  of  their  fellow-citizens  are  unable  to  render 
valuable  and  remunerable  services  to  society  with- 
out an  artificial  and  governmental  prop  at  their 
back? 

(4.)  This  brings  us  to  another  objection,  namely, 
that,  were  it  not  for  protective  duties,  our  manufac- 
tures would  collapse,  or  as  it  is  sometimes  phrased, 
other  nations  would  take  all  our  manufacturing  away 
from  us.  The  first  thing  to  be  said  about  this  is, 
that  we  do  not  manufacture  for  the  sake  of  manu- 
facturing, but  for  the  sake  of  the  product,  —  it  is  not 
the  process  that  we  care  about,  but  the  product; 
and  even  if  it  could  be  shown,  as  it  cannot,  that  free 
trade  would  lessen  the  manufacturing,  that  would 
not  be  so  deplorable,  provided  we  obtained  by  it  for 
the  satisfaction  of  our  wants  as  many  or  more  man- 
ufactured products.  Satisfactions,  and  not  efforts, 
are  ultimate  in  the  field  of  exchange.  In  the  second 
place,  it  is  needful  to  look  at  the  meaning  of  the 
word,  manufactures.     So  far,  I  have  used  it  in  the 


882  ELEMENTS   OF  POLITICAL  ECONOMY. 

loose  popular  way  by  which  it  has  come  to  mean 
practically  in  this  country  the  processes  by  which 
cotton,  wool,  and  iron,  are  rendered  available  for 
various  human  uses.  These  more  prominent  inter- 
ests are  currently  meant  under  the  terms  manufac- 
tures and  manufacturers;  but  of  course  the  terms 
properly  include  a  wide  range  of  efforts  beyond  these, 
indeed  almost  all  forms  of  industry  not  agricultural, 
and  not  primarily  mental.  Now  to  say,  in  the  broad 
sense,  that  protective  duties  are  necessary  in  order 
that  manufactures  may  succeed,  is  to  make  a  state- 
ment which  can  be  shown  to  be  false.  What  is  the 
magic  of  a  protective  duty?  This,  that  it  says  to 
men  who  would  otherwise  come  to  our  shores  to 
trade,  "  You  shall  not  bring  those  commodities  you 
were  about  to  bring,  nor  take  away  those  commodi- 
ties you  were  about  to  take  in  exchange."  People 
commonly  look  only  at  the  first  part  of  what  is  said, 
and  console,  themselves  by  thinking,  if  foreigners  are 
not  allowed  to  bring  those  goods,  somebody  will  make 
them  at  home  for  us.  But  this  is  only  half  of  it. 
Those  branches  of  manufacture,  or  of  agriculture,  as 
the  case  may  be,  which  were  furnishing  the  goods 
wherewith  to  pay  for  those  commodities  about  to  be 
imported  but  now  prohibited,  lose  their  market.  If 
we  will  not  buy,  of  course  we  cannot  sell.  If  we 
prohibit  importations,  we  thereby  necessarily  prevent 
exportations ;  that  is  to  say,  we  take  away  their  mar- 
ket from  those  who  manufacture  or  grow  the  goods 
which  would  be  exported.  We  depress  a  profitable 
branch  of  manufacture  by  taking  away  its  market, 
for  the  sake  of  introducing  or  fostering  a  branch 
which  is  by  supposition  and  confession  unprofitable. 


ON  FOREIGN  TRADE.  383 

The  advocates  of  protection  do  not  claim  that  branches 
of  business  which  would  otherwise  be  profitable  and 
self-supporting  should  be  protected,  but  only  the  weak 
and  less  profitable  kinds ;  and  so  to  bolster  up  these, 
protective  duties  virtually  destroy  other  branches  of 
industry,  which  only  ask  that  their  natural  market 
shall  be  let  alone,  to  maintain  an  independent  and 
profitable  existence.  It  is  impossible  to  characterize 
in  terms  of  respect  so  short-sighted  and  miserable  a 
policy.  How  can  a  free  commerce  depress  manu- 
factures, when  every  nation  must  manufacture  or 
grow  a  dollar's  worth  at  home  for  every  dollar's  worth 
imported  from  abroad?  How  can  high  duties  foster 
manufactures  as  a  whole,  when  their  very  first  effect 
is  to  cut  off  from  their  market  ail  those  manufac- 
tures which  would  otherwise  have  gone  abroad  with 
a  profit,  and  their  second  effect  merely  to  stimulate 
up  to  the  general  level  of  profit  those  which  it  is 
claimed  will  not  otherwise  yield  a  profit? 

The  French  manufacturers  in  1861  were  afraid 
that  if  the  barriers  of  restriction  were  thrown  down, 
as  proposed  in  Mr.  Cobden's  treaty,  their  business 
would  suffer  from  English  competition.  The  result 
has  shown  how  futile  were  their  fears.  A  large  part 
of  the  manufactures  of  either  country  are  admitted 
into  the  other  with  perfect  freedom,  and  the  duties 
on  most  of  the  rest  very  materially  reduced;  and  the 
French  manufacturers  have  found,  as  the  American 
at  no  distant  day  will  find,  that  there  is  nothing 
which  stimulates  manufactures  so  much  as  a  broad 
market,  —  not  merely  a  home-market,  but  a  w^orld- 
market  The  French  sent  to  England,  in  1863, 1,076,- 
000,000  francs  worth  of  goods  and  received  back 


384  ELEMENTS  OF  POLITICAL  ECONOMY. 

within  a  trifle  as  much  in  return,  which  was  almost 
a  quarter  of  what  they  sent  and  received  to  and  from 
the  rest  of  the  world.  It  is  as  the  friends  and  not  the 
enemies  of  manufactures  that  we  demand  the  abro- 
gation of  restrictive  duties.  Manufactures  as  a 
whole  can  never  reach  their  point  of  just  expansion, 
until  this  professedly  discriminating,  really  repressing, 
and  only  at  a  few  favorite  points  stimulating,  system 
shall  be  abolished. 

But  it  is  said,  that  England  can  work  up  cottons, 
and  Germany  wools,  and  the  North  of  Europe  irons, 
cheaper  than  w^e  can.  Those  who  have  followed  me 
thus  far  through  this  chapter,  now  know  that  abso- 
lute cost  of  production  has  little  to  do  directly  in  for- 
eign trade.  But  if  it  be  true  that  these  commodities, 
or  any  others  whatsoever,  can  really  be  obtained  by 
us  by  a  less  expense  of  effort  through  exchange  than 
directly,  is  there  a  decent  reason  why  we  should 
prefer  to  get  them  by  the  hardest  w^hen  the  easiest 
way  is  open  ?  We  may  be  assured  that  we  shall  not 
get  them  without  being  obliged  to  pay  for  them,  and 
to  pay  for  them  will  require  a  fair  expenditure  of 
effort  and  skill.  If  foreigners  have  the  advantage 
over  us  in  some  things,  we  have  the  advantage  over 
them  in  many  things,  and  all  exchange  and  the 
profits  of  it  depend  on  relative  superiority  at  differ- 
ent points. 

(5.)  I  pass  to  an  objection  much  urged  by  Mr. 
Carey,  and  others,  namely,  that  the  United  States, 
without  the  aid  of  protective  duties,  will  be  confined 
to  agricultural  pursuits,  and  no  diversity  of  employ- 
ments, so  essential  to  full  social  life,  will  come-  into 
play.     But  the  truth  is,  diversity  of  employments  is 


ON  FOREIGN  TRADE.  385 

rooted  in  human  nature,  and  in  the  circumstances 
amid  which  God  has  placed  men,  and  so  far  is  it 
from  law  being  necessary  to  foster  this  diversity,  that 
law  is  powerless  to  prevent  it !  While  we  were  col- 
onies of  Great  Britain,  the  laws  were  very  strict 
against  domestic  manufacturing  of  almost  all  kinds, 
and  yet  long  before  the  Revolution,  the  various 
branches  of  manufacture  were  introduced  and  prose- 
cuted in  spite  of  the  laws:  clothiers'  mills  went  up 
along  the  mountain  streams;  wool  and  woollens  were 
exported  to  the  West  Indies  and  elsewhere ;  iron  was 
smelted  and  rolled  and  slit  and  plaited,  and  the  man- 
ufacture of  steel  was  attempted,  and  the  germs  of 
many  diverse  employments  were  expanding,  notwith- 
standing the  hostility  of  the  law.^  Parliament  felt 
itself  called  on  to  pass  laws  again  and  again  prohib- 
iting under  severe  penalties  these  incipient  manufac- 
tures, sometimes  making  them  liable  to  summary 
destruction  as  "  nuisances."  As  soon  as  a  branch 
of  industry  becomes  profitable,  and  suitable  to  the 
conditions  in  which  a  community  is  placed,  nothing 
but  extreme  vigilance  can  prevent  its  springing  into 
being.  Men  naturally,  spontaneously,  under  the 
pressure  of  necessity  render  to  each  other  such  ser- 
vices as  are  in  demand,  and  as  are  possible  to  be 
rendered  in  the  state  in  which  they  are  placed.  Fos- 
ter manufactures  artificially  ?  They  will  come  in 
naturally  and  inevitably  just  so  fast  and  so  far  as 
they  ought  to  come  in.  They  are  as  natural  to  men 
as  agriculture.  They  require  capital  indeed,  and  on 
a  large  scale,  a  large  capital.  So  does  agriculture. 
Capital  is  the  growth  of  time  and  of  frugality.     No 

1  See  Hildreth,  passim. 


386  ELEMENTS  OF  POLITICAL  ECONOMY. 

new  society  can  come  at  once  into  all  the  forms  of 
industry  which  adorn  an  old  established  State;  there 
must  be  a  gradual  growth  of  capital  and  of  skill,  and 
as  these  increase,  one  branch  of  industry  after  another 
comes  in,  and  finds  a  stable  foothold ;  and  as  capital 
further  increases,  and  the  rate  per  cent,  of  capital 
goes  down,  it  becomes  profitable  to  do  many  things 
which  it  would  be  sheer  folly  to  do  at  an  earlier 
period.  When  every  dollar  of  the  capital  of  a  coun- 
try can  realize  a  clear  gain  of  ten  per  cent.,  is  there 
any  sense  or  reason  in  withdrawing  a  part  of  it  into 
occupations  which  can  only  yield  six  per  cent.  ? 
"  But  we  must  have  diversity,"  says  Mr.  Carey. 
Certainly,  we  want  diversity,  but  only  a  natural 
diversity,  in  which  each  branch  can  stand  on  its  own 
legs,  and  not  find  it  necessary  to  tax  all  its  neighbors 
in  order  that  its  own  profits  may  equal  the  average 
of  theirs.  The  theory  of  a  protective  tariff  is  this  : 
that  certain  unprofitable  branches  of  business  shall 
be  cared  for  by  the  State,  that  is  to  say,  the  citizens 
shall  be  taxed  to  bring  up  the  profits  of  these  to  the 
general  standard  of  profits.  Is  a  diversity,  thus 
secured,  a  profitable  diversity  ?  Would  it  not  be 
better  for  all  concerned  not  to  enter  at  present  upon 
forms  of  industry  that  by  confession  do  not  pay? 
"  But,"  urges  the  advocate  of  protection,  "  if  they  do 
not  now  pay,  they  will  pay  by-and-by."  How  do 
you  know  that  they  will?  The  fact  that  they  do 
not  now  pay,  is  not  of  itself  good  proof  that  they  ever 
will ;  and  at  any  rate,  it  strikes  a  good  many  people 
that  it  would  be  better  to  wait  till  that  time  comes, 
and  to  enter  upon  branches  of  industry  just  as  fast 
as  they  become  profitable,  and  no  faster. 


ON  FOREIGN  TRADE.  387 

It  seems  strange  to  me,  that  Mr.  Carey,  whose 
general  confidence  in  man  and  in  nature  is  so  justly 
strong,  should  find  his  confidence  desert  him  just  at 
this  point ;  should  show  so  much  impatience  with  a 
natural  progress  of  diversity  and  association  ;  and 
should  vehemently  invoke  the  assistance  of  law  to 
help  on  diversity  within  a  sphere  for  whose  general 
freedom  he  is  a  distinguished  champion.  He  is  less 
consistent  than  the  famous  charioteer,  who,  when  his 
horses  ran  away  down  the  hill,  trusted  in  Providence 
until  the  breeching  broke,  and  then  gave  all  up  for 
lost.  Mr.  Carey  trusts  in  Providence,  and  does  well ; 
but  all  at  once,  when  to  other  passengers  as  clear- 
sighted as  himself  there  are  no  signs  of  anything 
giving  way,  he  shrieks  out  that  the  breeching  is 
breaking,  Providence  is  inadequate,  we  must  have 
recourse  to  Protection. 

The  idea  that  the  United  States,  with  a  greater 
variety  and  abundance  of  natural  resources  than  any 
other  country  on  the  globe  ;-with  an  industrious,  and 
enterprising,  and  skilful  people ;  with  mountain 
streams  which  leap  to  the  wheels  of  industry  with  a 
song ;  with  forests  and  coal-fields,  and  mines ;  with 
marts  and  markets,  and  navigable  lakes  and  rivers ; 
with  a  genius  for  traffic,  and  a  keen  eye  to  profit, — 
the  idea  that  the  United  States  is  to  be  reduced  to  a 
mere  farming  country,  unless  government  can  be 
coaxed  to  tax  foreigners  and  citizens  in  behalf  of 
some  branches  of  manufacture  which  are  asserted  to 
be  otherwise  unprofitable,  —  is  too  ridiculous  for 
serious  refutation.  Why,  no  nation  of  the  earth  has 
such  facilities  for  manufacturing:  the  raw  materials 
are  here ;  the  food  is  here  in  abounding  measure ;  the 


388  elejMents  of  political  economy. 

instruments  are  here  in  water,  wood,  and  coal ;  cat- 
tle and  horses  and  pastures  are  here ;  everything  is 
here  which  a  nation  can  ask  for  with  which  to  pro- 
duce either  directly  that  which  is  wanted,  or  directly 
that  with  which  to  purchase  at  the  cheapest  rates 
what  is  wanted  from  abroad ;  and  if  God  shall  give 
us  grace  to  mind  our  own  business,  to  avoid  entan- 
gling alliances  with  our  neighbors,  and  unnatural 
wars  with  foreigners,  to  rise  above  the  silly  jealousies 
which  have  hitherto  restricted  trade,  we  shall  yet  be 
the  beehive  of  the  nations,  the  chosen  home  of  the 
industrial  and  civilizing  arts. 

(6.)  But  Mr.  Carey  endeavors  to  discover  a  dis- 
tinction between  commerce  and  trade.  He  says: 
"  The  words  commerce  and  trade  are  commonly  re- 
garded as  convertible  terms,  yet  are  the  ideas  they 
express  so  widely  different,  as  to  render  it  essential 
that  their  difference  be  clearly  understood.  All  men 
are  prompted  to  associate  and  combine  with  each 
other,  —  to  exchange  ideas  and  services  with  each 
other, — and  thus  to  maintain  commerce.  Some  men 
seek  to  perform  exchanges  for  other  men,  and  thus  to 
maintain  trade."  ^  This  attempted  distinction  plays 
a  very  important  part  in  Mr.  Carey's  system ;  he  is 
returning  to  it  perpetually  ;  and  according  to  it,  com- 
merce increases  as  trade  declines,  the  trader  is  a  foe 
alike  to  commerce  and  society,  and  lives  "  by  appro- 
priation," and  restrictions  ought  to  be  laid  on  trade 
in  order  "to  establish  perfect  freedom  of  commerce 
throughout  the  world."  He  complains  that  hitherto 
"commerce  has  been  sacrificed  at  the  shrine  of  trade." 
Now,  I  have  no  hesitation  in  affirming  that  this  for- 

1  Social  Science,  Vol.  I.  p.  210. 


ON  FOREIGN  TRADE.  389 

midable  looking  distinction  is  for  the  most  part  desti- 
tute of  any  basis  of  difference.  Let  us  examine  it. 
They  who  exchange  services  with  each  other,  says 
the  distinction,  practise  commerce,  while  they  who 
perform  exchanges  for  other  men  are  mere  traders. 
The  distinction  is  made  to  turn  on  the  ownership  of 
the  services  exchanged :  if  the  principals  exchange 
for  themselves,  that  is  commerce  ;  if  they  employ 
agents  to  do  it  for  them,  that  is  trade ;  if  a  merchant 
freights  his  own  ship  with  his  own  goods  and  takes 
them  to  a  foreign  port,  and  takes  care  to  exchange 
there  with  real  owners  only  for  what  he  wants  in 
return,  that  is  commerce ;  but  if  he  employs  a  super- 
cargo to  manage  his  sales  and  returns,  then  it  is  trade. 
If  a  middle-man  buys  the  cargo  outright,  and  sells  to 
another  middle-man  on  the  other  side  who  is  real 
owaier  of  the  return  services,  that  is  commerce  under 
the  definition  ;  while  in  domestic  exchanges  all  bar- 
gains mediated  by  employees  is  trade  under  the  defi- 
nition. This,  to  say  the  least  of  it,  is  putting  a  fine 
point  on  commercial  transactions  ;  and,  so  far  as  I 
can  see,  is  totally  irrelevant  in  a  general  doctrine  of 
exchanges.  Exchange  is  exchange,  and  the  laws  of 
exchange  and  the  profits  of  exchange  remain  unaf- 
fected by  any  such  distinction.  Qui  facit  per  alium 
facit  per  se.  If  I  employ  an  agent  to  do  any  portion 
of  my  business  for  me,  it  is  because  I  think  it  profit- 
able to  do  so,  and  there  is  an  exchange  of  services 
between  him  and  me  for  that  purpose,  but  the  ex- 
changes which  he  effects  in  my  name  as  principal 
are  in  nature  the  same  as  if  I  effected  them  myself. 
If  Mr.  Carey  wants  to  say  that  exchanges  would  be 
more  profitable  if  there  were  no  costs  of  carriage,  no 


390  ELEMENTS  OF  POLITICAL  ECONOMY. 

clerk  hire,  no  intermediate  services  of  any  sort,  there  is 
nobody  to  dispute  with  him  ;  but  since  exchanges  can- 
not be  carried  on  to  any  extent  without  these  agen- 
cies, what  is  the  use  of  quarrelling  with  Nature  and 
Providence  ?  The  transporter  is  just  as  much  of  a 
producer  as  the  grower  or  transformer,  —  he  renders  a 
valuable  service,  and  must  be  paid  for  it  of  course. 
As  soon  as  his  services  can  be  dispensed  with,  and  no 
loss  accrue,  they  will  most  assuredly  be  dispensed 
with ;  but  to  say  that  people  shall  not  employ  such 
an  agent  if  they  think  their  interests  subserved  by 
employing  him,  can  hardly  be  reconciled  with  any 
adequate  notions  of  freedom  or  of  exchange.  All 
sorts  of  services  are  in  order  in  exchange.  All  sorts 
of  talent  are  available.  If  a  man  has  not  capital  to 
do  business  for  himself,  let  him  begin  by  dt)ing  busi- 
ness for  others.  If  a  man  can  furnish  a  ship,  but 
cannot  freight  her,  there  is  no  mortal  objection  to  his 
furnishing  a  ship.  Let  the  merchant  freight  her,  and 
let  them  divide  profits  on  the  return.  If  a  distinction 
between  commerce  and  trade  be  allowed,  for  which 
I  see  no  ground  whatever,  each,  at  any  rate,  is  swal- 
lowed up  in  the  higher  unity  of  exchange,  and  be- 
comes amenable  to  the  principles  already  unfolded. 

It  is  in  this  connection,  that  Mr.  Carey  exalts  the 
policy  of  Colbert,  the  famous  finance  minister  of 
Louis  XIV.,  who  certainly  did  much  for  the  prosper- 
ity of  France,  and  well  deserves  the  fame  which  pos- 
terity is  so  ready  to  accord.  But  to  refer  the  immense 
industrial  impulse  which  France  received  at  that  time 
in  any  considerable  degree  to  the  restrictive  duties 
laid  by  Colbert  on  foreign  trade,  is  an  instance,  by 
no  means  single  in  Mr.  Carey's  books,  of  a  fallacy 


ON  FOREIGN  TRADE.  391 

called  by  the  logicians  post  hoc  ergo  propter  hoc.  It 
is  most  unsatisfactory  and  illogical  to  be  told  that 
one  thing  came  after  another  and  therefore  was 
caused  by  it.  Colbert  did  many  things  much  better 
worth  the  doing  than  to  lay  prohibitory  duties.  He 
swept  away,  so  far  as  lay  in  his  power,  all  the  obsta- 
cles to  the  freest  interchange  of  commodities  within 
the  realm  of  France.  He  abolished  the  interminable 
internal  tolls  and  duties.  He  simplified  and  reduced 
the  taxes.  Says  Henri  Martin,  — "  We  are  struck 
with  admiration  to  see  Colbert  begin  by  reducing  an 
impost  thirty-three  per  cent.,  on  the  increased  product 
of  which  he  founded  in  great  part  his  hopes.  Tram- 
pling on  the  routine  of  the  exchequer,  he  had  com- 
prehended that  consumption  increases  in  equal  or 
even  greater  proportion  to  the  abasement  of  duties 
that  weigh  on  consumable  objects,  and  that  the  pub- 
lic treasury  does  not  lose  what  the  well-being  of  the 
people  gains."  ^  He  abolished  superfluous  offices,  and 
introduced  economy,  and,  as  far  as  possible,  honesty 
into  every  department  of  the  State.  He  emancipated 
the  Communes  from  their  old  burdens,  and  forbade 
their  incurring  new  debts.  He  renovated  the  whole 
industrial  and  financial  system;  and  France  began 
mightily  to  prosper.  But  he  was  also  in  part,  un- 
fortunately, a  disciple  of  the  mercantile  system.  He 
laid  heavy  duties  on  foreign  goods,  which  of  course 
provoked  foreigners  to  lay  similar  duties  on  the  prod- 
ucts of  French  industry.  Martin  himself,  with  whom 
Colbert  is  a  hero,  acknowledges  this  consequence. 
It  has  never  been  proved,  and  never  can  be,  that  the 
high  duties  contributed  to  the  then  prosperity  of  the 

1  History  of  France. 


392  ELEMENTS  OF  POLITICAL  ECONOMY. 

French ;  the  weight  of  bare  authority  is  about  evenly 
balanced  on  the  question ;  but  he  who  follows  reason 
and  science  in  the  premises  will  not  hesitate  in  his 
decision. 

(7.)  Mr.  Erastus  B.  Bigelow  of  Boston  published 
in  1862  a  quarto  volume,  entitled  "  The  Tariff  Ques- 
tion, considered  in  Regard  to  the  Policy  of  England 
and  the  Interests  of  the  United  States."  About  a 
hundred  pages  of  this  volume  are  letter-press;  and 
the  remaining  hundred  and  fifty  contain  statistical 
and  comparative  tables,  designed  to  illustrate  and 
confirm  the  positions  taken  in  the  text. 

Mr.  Bigelow  is  an  inventor,  and  as  such  deserves 
well  of  the  country  and  of  the  world.  He  has  in- 
vented a  power-loom  for  the  weaving  of  two-ply  and 
three-ply  carpets, —  a  mechanical  feat,  which,  before 
he  accomplished  it,  had  been  pronounced  an  impossi- 
bility. In  consequence  of  his  inventions  and  im- 
provements the  carpet  manufacture  in  this  country 
has  received  a  vast  expansion,  —  fabrics  which  before 
were  produced  from  hand-looms  at  the  rate  of  3  to 
8  yards  per  day  being  now  produced  of  better  quality 
from  the  power-loom'  at  the  rate  of  18  to  30  yards 
per  day.  Lowell  and  Clinton  in  Massachusetts, 
Thomsonville  and  Tariffville  in  Connecticut,  have 
had  flourishing  carpet  establishments  under  the  Bige- 
low patents. 

As  these  tabular  statements  and  statistics  make 
up  much  the  larger  part  of  Mr.  Bigelow's  book,  so 
they  constitute  also  its  most  valuable  part ;  and  as  I 
propose  in  these  paragraphs  to  make  some  strictures 
upon  the  arguments  and  positions  of  the  book,  I  wish 
to  acknowledge,  at  the  outset,  in  the  amplest  man- 


ON  FOREIGN  TRADE.  893 

ner,  the  accuracy  and  value  of  these  statistics.  Some 
of  them  were  compiled,  with  great  labor,  from  sources 
that  are  inaccessible  to  most  people,  and  the  whole 
together  make  up  a  set  of  tables  exceedingly  valuable 
for  reference. 

Let  Mr.  Bigelow  state  his  fundamental  position  in 
his  own  words  :  "  Let  it  be  understood,  then,  that  the 
protective  policy  here  advocated,  is  not  a  policy  that 
seeks  to  favor  a  particular  interest  at  the  expense  of 
some  other  interest,  or  which  would  build  up  one 
section  of  the  country  to  the  detriment  of  other 
sections.  A  scale  of  duties  w^hich  should  place  our 
manufacturers  on  a  level  wdth  their  competitors  in 
countries  whose  wages  and  interest  are  lower  and 
capital  more  abundant  than  with  us,  could  have  no 
effects  nor  tendencies  which  would  not  be  beneficial 
to  all  classes  and  to  the  whole  nation.  In  the  selec- 
tion of  objects  there  would  be  need,  certainly,  of  a 
careful  discrimination.  It  is  clearly  unwise  to  foster 
by  legislative  aid  any  branch  of  industry  or  business 
for  the  prosecution  of  which  our  natural  advantages 
are  decidedly  inferior.  Some  strong  and  peculiar 
necessity  can  alone  justify  such  a  course.  But  in 
regard  to  all  those  pursuits  for  which  we  have  the 
requisite  endowments,  and  need  only  the  acquired 
advantages  of  capital,  skill,  and  position,  in  order  to 
compete  successfully  with  other  nations,  I  hold  it  to 
be  not  only  proper  but  necessary  that  so  much  of 
governmental  aid  shall  be  afforded  as  will  raise  our 
industry  to  a  footing  of  equality.  To  do  this  effect- 
ually, our  duties  should  be  so  established  as  not  only 
to  meet  and  equalize  the  differences  just  mentioned, 
but  also  to  counteract  that  occasional  application  of 


394  ELEMENTS  OF  POLITICAL  ECONOMY. 

foreign  capital  by  which  our  market  is  sometimes 
designedly  flooded  with  cheap  goods,  at  a  loss  it  is 
true,  to  the  producer,  but  with  still  greater  damage 
to  some  struggling  manufacture  of  our  own,  if  not 
indeed  to  its  utter  prostration." 

Let  us  look  for  a  moment  at  this  passage.  In  the 
first  sentence  he  disclaims  "  advocating  a  protective 
policy  that  seeks  to  build  up  a  particular  interest  at 
the  expense  of  some  other  interest."  But,  unluckily, 
he  fails  to  tell  us  anywhere  in  his  book  how  that 
thing  can  be  done,  —  how  a  particular  interest  can 
be  fostered  by  protective  duties  except  at  the  expense 
of  other  interests.  Who  pays  the  enhanced  price 
caused  by  the  duty  ?  Clearly,  all  consumers  pay  it. 
This  is  universally  admitted.  Mr.  Bigelow  does  not 
deny  it.  Unless  then,  it  can  be  shown  that  the 
enhanced  prices  of  commodities  are  paid  at  nobody's 
expense,  that  the  consumer  pays  two  dollars  as  easily 
as  one,  then  it  is  in  vain  to  talk  about  a  protective 
policy  that  fosters  one  interest  without  depressing 
others.  It  is  an  omission  fatal  to  his  argument,  that 
our  author  does  not  show  how  this  financial  miracle 
is  wrought.  We  cannot  indeed  blame  him  for  not 
showing  what  is  impossible  to  be  shown,  but  we  do 
blame  him  for  bringing  forward  an  argument  the 
whole  validity  of  which  depends  on  one  premise, 
without  attempting  to  prove  that  premise.  This 
proof  is  utterly  wanting  in  the  book  before  us.  The 
argument  falls  therefore  of  itself  to  the  ground.  It 
is  an  easy  thing  to  say  :  "  Let  us  have  a  protective 
tariff  here  that  shall  stimulate  artificially  certain 
branches  of  industry,  and  nobody  be  any  the  poorer." 
Is  it  impertinent  for  us  to  require  of  those  who  say 


ON  FOREIGN  TRADE.  395 

this,  that  they  shall  tell  us  how  these  branches  of 
industry  can  be  thus  stinnulated  and  nobody  be  any 
the  poorer? 

But  the  second  sentence  is  still  more  extraordinary. 
It  contains  the  surprising  assertion  that  a  scale  of 
high  restrictive  duties  "  could  have  no  effects  nor 
tendencies  which  would  not  be  beneficial  to  all  classes 
and  to  the  whole  nation."  Let  us  look  at  some  of 
these  "  effects  and  tendencies,"  and  see  if  they  be  so 
universally  beneficial.  First,  commerce  is  lessened 
by  the  restriction.  Some  people  who  used  to  comi^ 
to  your  shores  to  trade,  to  bring  their  surplus  products 
and  to  take  off  yours,  no  longer  come.  You  have 
flung  your  fist  into  their  face,  and  they  prudently  stay 
away.  In  consequence,  those  home  commodities  you 
formerly  exchanged  with  them  no  longer  find  a  mar- 
ket, that  is,  their  best  and  freely  chosen  market. 
Perhaps  they  do  not  find  a  market  at  all.  Home 
labor  is  so  far  discouraged,  and  home  products  are 
so  far  less  valuable.  Is  there  anything  in  this  bene- 
ficial "  to  all  classes  and  to  the  whole  nation "  ? 
Again,  your  action  leads  the  other  nation  to  adopt 
or  perpetuate  similar  restrictions.  You  are  thrust 
from  her  ports  just  as  you  thrust  her  from  yours. 
You  fail  to  get  her  commodities  which  you  formerly 
enjoyed.  There  are  fewer  exchanges  here,  and  fewer 
exchanges  there.  Commerce  thus  receives  a  double 
blow,  first  on  one  cheek,  then  on  the  other.  Is  there 
anything  in  this  "  beneficial  to  all  classes  and  to  the 
whole  nation  "  ?  Furthermore,  in  consequence  of 
these  restrictions,  the  prices  of  all  commodities  that 
are  exchanged,  stand  at  a  much  higher  figure,  and 
every  consumer  must  pay  these  enhanced  prices.     Is 


396  ELEMENTS  OF  POLITICAL  ECONOMY. 

there  anything  in  this  beneficial  to  all  classes  and  to 
the  whole  nation  ?  The  truth  is,  this  assertion  is 
very  loose,  and  very  wide  of  the  facts,  and  Mr.  Bigelow 
would  find  it  difficult  to  justify  his  language  to  in- 
telligent and  candid  people. 

But  besides  this  the  sentence  under  review  contains 
a  fallacy  which  has  been  again  and  again  exposed, 
but  which  deserves  another  faithful  exposure,  and 
shall  receive  it.  We  must  have  a  restrictive  tariff, 
says  Mr.  Bigelow,  because  other  nations  have  a 
lower  rate  of  wages  and  interest,  and  more  abundant 
capital  than  we.  But  it  is  fair  to  presume  that  Mr. 
Bigelow  knows  that  foreign  trade  depends  only  very 
remotely  on  the  absolute  cost  of  the  articles  ex- 
changed. It  is  relative  efficiency,  not  absolute,  that 
determines  foreign  trade.  If  any  person  does  not 
know  this,  then  he  is  ignorant  of  the  one  funda- 
mental proposition  of  commerce,  and  his  reasoning, 
as  a  matter  of  course,  cannot  reach  correct  conclu- 
sions. If,  on  the  other  hand,  a  writer  be  familiar 
with  this  fundamental  proposition,  he  should  see  that 
any  reference  to  lower  wages  and  lower  interest  of 
money  is,  in  this  connection,  entirely  irrelevant.  It 
is  a  matter  of  indifference  to  us  what  the  goods  we 
buy  from  abroad  cost  their  producers,  whether  they 
paid  high  wages  or  low  wages,  high  interest  or  low  in- 
terest ;  we  do  not  care  about  the  absolute  cost  of  pro- 
duction of  anything  we  buy;  the  question  of  interest 
for  us  is  how  much  of  the  home  commodity  must 
we  give  for  it,  and  what  does  the  home  commodity 
cost  us.  The  simple  question  that  determines  foreign 
trade  is  this, —  would  the  commodity,  if  prodijced  here, 
cost  more  than  that  commodity  with  which  we  buy 


ON  FOREIGN  TRADE.  397 

it?  If  it  would,  then  we  profitably  import  it;  and 
this,  without  any  reference  to  its  cost  to  the  foreign 
producer.  Whether  he  pays  high  wages  or  low 
wages,  high  interest  or  low  interest,  whether  capital 
is  abundant  there  or  scarce,  has  little  to  do  with  this 
question  of  a  profitable*  exchange  of  commodities, 
and  justifies,  in  no  conceivable  manner,  the  restrict- 
ive system.  California  has  much  higher  wages  and 
a  much  higher  interest  than  New  England  ;  does  she 
need,  therefore,  to  prohibit  New-England  ships  from 
entering  the  Golden  Gate  ?  Is  it  for  her  interest  to 
put  restrictions  on  New-England  goods  ?  Does  New 
England,  because  wages  are  lower  here,  get  more  than 
her  share  of  advantage  in  the  California  trade  ?  K 
not,  no  more  would  England  or  India  in  a  trade  with 
us.  We  trade  with  all  the  world :  some  parts  have 
a  higher  rate  of  wages  and  interest  than  we  ;  some 
parts  have  a  lower  rate  ;  so  far  as  that  matter  is  con- 
cerned our  trade  may  be  equally  advantageous  with 
them  all. 

To  this  law  of  foreign  trade  there  is,  however, 
a  single  not  unimportant  exception.  When  two 
nations  go  into  the  market  of  the  world  with  the 
same  commodity,  to  buy  gold  and  silver,  then  the 
absolute  money-cost  of  that  commodity  is,  as 
between  the  two,  an  important  question.  That  one 
of  the  two  nations  whose  wages  are  lower,  and 
whose  rate  of  interest  is  less,  in  the  manufacture  of 
the  common  commodity  will,  in  a  trade  for  gold, 
under-sell  the  other — that  is,  can  afford  to  give  more 
of  its  commodity  for  an  ounce  of  gold,  because  its 
commodity  has  cost  less  in  gold.  This  is  clear,  and 
it  is  the  only  case  where  foreign  trade  is  determined 


398  ELEMENTS  OF  POLITICAL  ECONOMY. 

by  the  absolute  cost  of  production.  But  our  author 
can  get  no  crumb  of  comfort  here ;  for  in  the  first  place, 
the  commerce  of  the  world  is  not  a  commerce  for 
gold  and  silver,  but  a  commerce  of  commodities,  in  the 
exchange  of  which  relative  cost  is  the  only  principle. 
And  in  the  second  place,  When  two  nations  go  into 
the  market  of  the  world  for  gold,  they  rarely  carry 
the  same  commodity,  but  carry,  each  its  own  pecu- 
liar commodities,  in  the  production  of  which  it  has 
the  greatest  advantage.  They  have  a  strong  motive 
to  do  this  always,  for  that  which  they  have  the 
greatest  advantage  in  producing  will  buy  all  other 
commodities,  gold  included,  at  the  cheapest  rate. 
Here  too  the  relative  cost  decides.  And  in  the  third 
place,  if  two  nations  do  carry  the  same  commodity 
into  the  same  market  to  buy  the  same  gold,  and  the 
nation  whose  wages  and  profits  are  higher  is  thereby 
at  a  disadvantage  in  the  trade,  how  is  a  restrictive 
tariff  at  home  to  help  that  matter  ?  The  true  remedy 
is  to  cultivate  our  own  peculiar  advantages  to  the 
highest  point,  and  carry  those  commodities  abroad 
to  buy  our  gold,  and  not  endeavor  to  compete  with 
our  neighbor  in  the  same  commodity.  High  wages 
and  high  profits  are  a  vast  national  advantage  ;  le- 
strictive  systems  tend  certainly  to  reduce  them  ;  but 
shall  we  throw  away  a  great  advantage  enjoyed  by 
all  laborers  and  all  capital  in  all  departments,  in  order 
to  compete  with  less  fortunate  nations  in  a  single 
trade  with  a  single  commodity  ?  The  folly  of  this  is 
patent ;  especially  as  the  United  States  is  a  gold- 
producing  country,  and  not  only  supplies  herself  with 
gold,  but  half  the  world  besides.  All  this  t^lk  there- 
fore about  high  wages  and  high  profits  putting  us  at 


ON  FOREIGN  TRADE.  399 

a  disadvantage  in  foreign  trade,  and  making  restric- 
tion necessary,  is  moonshine  of  the  purest  sort,  —  is, 
in  every  case,  irrelevant. 

In  the  next  sentence  of  the  extract  quoted,  Mr. 
Bigelow  really,  though  unconsciously,  concedes  to  us 
the  whole  question  in  dispute.  "  It  is  clearly  un- 
wise," says  he,  "  to  foster  by  legislative  aid  any 
branch  of  industry  for  which  our  natural  advantages 
are  decidedly  inferior."  But  if  our  natural  advan- 
tages are  not  decidedly  inferior,  why  do  we  need  any 
legislative  aid  at  all?  Or,  to  translate  this  euphoni- 
ous expression  "  legislative  aid  "  into  plainer  English, 
why  should  everybody  be  taxed  to  maintain  a  branch, 
of  industry  whose  natural  advantages  are  not  in- 
ferior ? 

If  the  natural  advantages  are  inferior,  it  is  clearly 
unwise  to  protect,  says  Mr.  Bigelow  ;  but  if  the 
natural  advantages  are  not  inferior,  what  is  the  need 
of  protection  ? 

What  hinders  the  establishment  of  a  branch  of 
industry  in  any  country  whose  natural  advantages 
for  that  branch  are  not  inferior  ?  Clearly  tv^o  things 
can  hinder  it:  lack  of  capital  and  lack  of  skill.  If 
all  the  capital  of  the  country  is  now  taken  up  by 
branches  of  industry  already  existing,  of  what  advan- 
tage is  it  to  introduce  a  new  branch  which  can  only 
come  into  being  at  the  expense  of  the  old  by  with- 
drawing capital  from  the  old  ?  The  capital  is  already 
taken  up.  Let  it  abide  in  its  freely  chosen  channels. 
If  the  capital  of  the  country  is  not  all  taken  up,  then 
certainly  new  branches  of  industry  will  come  in,  will 
come  in  of  their  own  accord  ;  you  cannot  keep  them 
out.     Every  kind  of  business,  which,  under  present 


400  ELEMENTS  OF  POLITICAL  ECONOMY. 

circumstances,  is  profitable,  will  be  carried  on,  and 
those  that  are  not  profitable  we  do  not  want. 

If  the  restrictive  system  could  increase  the  capital 
of  a  country,  then  it  might  with  some  show  of  reason 
be  defended,  but  it  would  be  a  difficult  task,  I  think, 
to  show  how  the  capital  of  a  country  can  be  increased 
by  stopping  a  profitable  commerce. 

And  just  so  of  skill.  If  the  new  branch  of  manu- 
facture for  which  skilled  labor  is  wanted  is  carried  on 
abroad,  the  laborers  can  be  easily  imported.  An 
assurance  of  higher  wages  and  constant  employment 
has  brought  and  will  bring  again  skilled  laborers  from 
every  country  in  Europe.  Restriction,  cannot  give 
us  skill,  since  all  experience  has  shown,  and  common 
sense  testifies  to  the  same  point,  that  skill  will  be 
best  developed  under  the  freest  competition  —  under 
circumstances  where  everything  depends  on  relative 
skill,  rather  than  where  very  little  depends  on  it; 
where  a  high  price,  artificially  created,  is  sure,  whether 
skill  be  exercised  or  not.  The  sharp  spur  of  emula- 
tion added  to  the.  keen  impulse  of  interest,  will  most 
assuredly  carry  skill  to  its  highest  point.  Since, 
then,  Mr.  Bigelow  w^ould  not  employ  protection 
where  natural  advantages  are  inferior,  and  since 
where  they  are  not  inferior  the  only  obstacles  to 
new  branches  of  business  are  the  want  of  skill  and 
capital,  which  skill  and  capital  restriction  has  no  ten- 
dency to  increase,  where  is  the  ground  for  protec- 
tion at  all? 

In  the  last  sentence  quoted  Mr.  Bigelow  betrays, 
what  is  indeed  betrayed  in  various  parts  of  the  book, 
that  he  had  never  studied  with  sufficient  care  the 
nature  of  commerce  in  its  simple  elements.    It  would 


ON  FOREIGN  TRADE.  401 

have  saved  him,  as  I  think,  from  some  mistakes,  and 
from  many  fallacies,  if  he  had  thoroughly  reflected 
that  commerce  is  nothing  but  an  exchange  of  com- 
modities for  commodities  for  the  mutual  advantage 
of  the  parties,  and  that  exchange  is  always  a  recipro- 
cal act;  when  a  man  sells  he  buys,  and  when  he  buys 
he  sells.  If  a  foreigner  brings  goods  to  our  shores  he 
always  carries  away  in  effect  a  corresponding  value 
from  our  shores.  He  sells  to  us,  and  in  the  very  act 
he  buys  from  us :  we  buy  from  him  and  in  the  very 
act  sell  to  him.  It  is  a  reciprocal  act.  The  only 
motive  he  has  to  bring  anything  hither  is  that  he 
may  carry  something  hence.  When  therefore  Mr. 
Bigelow  says  in  the  sentence  referred  to,  that  for- 
eigners will  sometimes,  as  he  expresses  it,  "  flood  our 
markets  with  cheap  goods  at  a  loss  to  themselves,  for 
the  purpose  of  strangling  some  business  of  ours,"  he 
holds  up  a  bugbear,  which,  I  am  inclined  to  think, 
under  the  laws  of  commerce  and  the  laws  of  human 
nature,  never  could  become  a  reality.  Certainly 
until  some  well-authenticated  case  is  given  of  for- 
eigners who  were  willing  to  submit  to  a  present  and 
positive  loss  in  the  hope  of  a  gain  uncertain,  prob- 
lematical, and  future  ;  until  some  well-authenticated 
case  is  given  of  a  rising  manufacture,  adapted  to  our 
circumstances  and  profitable  in  itself,  being  ruined  in 
this  way ;  until  a  well-authenticated  case  is  given  of 
a  magnanimous  manufacturer  sacrificing  his  present 
gains  for  a  future  and  uncertain  benefit  to  accrue  to 
his  fellow-manufacturers,  freighting  ships  to  America 
to  bring  nothing  back,  —  until  the  case  is  given,  I  shall 
beg  leave  to  think  that  a  thing  so  contrary  to  the 
interests  of  capital,  to  the  laws  of  trade,  and  even  to 

26 


402  ELEMENTS  OF  POLITICAL  ECONOMY. 

the  principlds  of  human  nature,  has  not  occurred  in 
the  past,  and  is  not  likely  to  in  the  future. 

(8.)  One  further  objection  to  free  trade  remains 
to  be  briefly  considered.  It  is  this,  and  it  has  been 
urged  with  some  plausibility  and  much  pertinacity, 
namely,  that  every  nation  ought  to  be  independent 
of  others  in  all  the  more  essential  articles  of  life ; 
and  therefore  protective  duties  ought  to  be  laid  in 
order  to  compel  the  nations  to  make  or  grow  all  the 
articles  of  prime  necessity  for  themselves.  The  ob- 
jection divides  itself  into  two  parts,  the  postulate 
and  the  inference,  and  it  shall  be  considered  in  that 
order  and  relation.  First,  every  nation  ought  to  be 
independent  of  others  in  respect  to  the  supply  of  its 
more  necessary  wants,  such  as  food,  clothing,  means 
of  defence  and  offence,  and  so  on.  But  what  is  it 
to  be  independent?  I  suppose  it  means,  in  this 
connection,  to  be  sure  of  getting  what  is  wanted 
under  all  contingencies.  But  is  an  individual  man 
to  be  regarded  as  "dependent,"  and  as  likely  to 
lose  his  bread,  unless  he  devote  himself  to  the  grow- 
ing of  food  directly?  If  he  only  has  wherewithal 
to  buy  food,  I  take  it  that  he  is  just  as  "  independ- 
ent," just  as  likely  to  get  it,  as  if  he  produced  it 
himself;  and  so  a  nation  which  has  products  to 
offer  which  are  in  demand  in  the  world  without,  is 
very  sure  of  getting  whatever  it  wants,  provided  it 
is  anywhere  to  be  bought,  and  is,  in  my  apprehen- 
sion of  it,  in  a  very  "independent"  position.  Pro- 
tectionists have  degraded  language  and  degraded 
exchange  by  trying  to  make  it  appear  that  a  man 
and  a  nation  are  reduced  to  conditions  of  depen- 
dence whenever  they  find  it  for  their  interest  to  buy ; 


ON  FOKEIGN  TRADE.  403 

but  the  truth  is  that  there  is  nothing  dependent  in 
buying  and  selling;  the  parties  stand  on  a  footing 
of  perfect  equality  towards  each  other ;  each  is  at 
the  same  moment  buyer  and  seller ;  one  is  as  inde- 
pendent as  the  other,  and  nobody  can  be  more  so 
than  either,  except  the  savage  and  the  hermit,  who 
live  in  a  state  of  isolation.  Moreover,  every  nation 
does  of  course  devote  itself  directly  to  the  supply  of 
its  principal  wants,  and  always  continues  to  do  so, 
unless  it  appears  that  it  can  supply  those  wants 
more  cheaply  through  exchange.  If  it  can  supply 
them  more  cheaply  through  exchange,  it  becomes, 
in  my  judgment,  more  '* independent"  by  doing  so; 
more  independent  of  irksome  effort,  and  more  sure 
of  getting  its  wants  supplied,  since  now  it  draws  its 
supplies  from  a  wider  surface,  from  any  point  in  the 
wide  world  where  such  supplies  are  to  be  had  and 
where  its  own  products  are  in  demand.  So  far  as 
food  is  concerned,  this  objection  sounds  but  poorly 
in  the  mouths  of  protectionists,  who  are  the  men 
perpetually  bemoaning  the  prospect  that  every  na- 
tion, unless  it  follow  their  advice  and  lay  protective 
duties,  will  be  exclusively  agricultural. 

But  the  inference  is  even  less  defensible  than  the 
postulate.  Let  it  be  admitted,  for  argument's  sake, 
that  to  buy  is  to  be  dependent,  and  that  every  nation 
loses  a  part  of  its  independence  by  every  act  of  for- 
eign exchange  by  which  it  obtains  its  necessary 
supplies;  does  it  follow  that  protective  duties  are 
the  true  remedy  ?  No.  Prohibition  is  the  barrier  to 
hold  up  before  the  waning  independence  of  the  na- 
tion. Why  allow  a  thing  to  go  forward  under  more 
onerous  conditions,  which  under  less  onerous  was 


404  ELEMENTS  OF  POLITICAL  ECONOMY. 

proving  fatal  to  independence  ?  If  for  the  citizens 
to  import  freely  be  so  disadvantageous  to  their  inde- 
pendence, how  disastrous  must  it  be  to  have  the 
importations  still  go  forward  under  a  tax  in  addi- 
tion, which  the  citizens  must  pay ! 

The  late  insurgent  States  of  this  country  furnish 
a  capital  illustration  of  the  fact  that  war  and  a 
stringent  blockade  cannot  prevent  exchanges  from 
going  forward,  when  there  is  wherewithal  at  home 
to  pay  for  goods,  and  goods  abroad  which  are 
wanted  at  home.  The  United  States  maintained 
a  thousand  vessels,  more  or  less,  along  the  coast 
of  the  insurgent  region,  to  intercept  all  trade ;  but 
there  was  cotton  within  which  the  English  wanted, 
and  goods  without  which  the  insurgents  wanted, 
and  the  exchanges  went  on,  with  great  hazards  and 
frequent  losses  indeed,  but  went  on  for  four  years,  to 
an  immense  amount  of  transactions. 

It  is  always  pleasant  to  be  able  to  confirm  one's 
reasonings  with  facts,  to  clench  the  nail  driven  home 
by  a  logical  process,  with  a  blow  or  two  from  the 
hammer  of  actual  experience.  It  is  fortunately  pos- 
sible to  do  this  in  regard  to  free  trade.  All  the 
leading  commercial  nations,  the  United  States  alone 
excepted,  have  been  relaxing  of  late  years  their  com- 
mercial systems :  the  United  States  decidedly  re- 
laxed hers  in  1846,  and  again  in  1857,  but  in  1861, 
alone  of  nations,  and  in  the  face  of  principles,  she 
took  the  back  track,  and  prejudiced  thereby  as  well 
the  revenue,  which  we  have  sorely  needed  in  our 
time  of  trial,  as  the  cause  of  Freedom  itself,  which 
was  represented  by  rebel  emissaries  abroad  as  of  a 
piece  with  the  craft  which  so  little  appreciated  the 


ON  FOREIGN  TRADE.      *  405 

dawn  of  an  era  of  universal  freedom  as  to  mark  its 
opening  by  a  restrictive  and  irritating  tariff. 

England  many  years  ago  abandoned  for  substance 
the  doctrine  of  protection,  but  only  within  a  decade 
did  she  abolish  the  last  vestige  of  the  system  in  the 
disctimination  till  then  maintained  in  favor  of  her 
own  ships  over  those  of  foreigners  in  her  own  ports. 
There  is  nothing  now  to  hinder  American  ships 
from  competing  on  equal  terms  with  English  ves- 
sels in  the  coastwise  carrying- trade  of  England 
itself.  The  English  tariffs  are  adjusted  with  a  view 
to  revenue  merely ;  and  in  the  late  special  commer- 
cial treaty  with  France,  the  duties  were  thrown  off 
entirely  from  a  portion  of  French  manufactures,  and 
materially  reduced  on  most  of  the  rest.  England 
claims,  through  the  mouth  of  her  responsible  min- 
isters and  statesmen,  to  set  before  the  nations  an 
honest  example  of  free  trade ;  and  invites  them,  as  I 
believe,  in  good  faith,  to  follow  her  in  the  path  which 
she  has  opened  up  for  herself.  The  force  of  this  ex- 
ample is  frequently  sought  to  be  parried  by  alleging 
that  England  reached  through  protection  a  point  of 
prosperity  at  which  she  was  well  able  to  dispense 
with  protection.  This  is  neither  ingenuous  nor  true; 
since  the  men  who  have  persuaded  the  English  gov- 
ernment to  abandon  the  principle  of  protection,  are 
the  men  who  have  demonstrated  the  economical 
folly  of  the  principle  under  all  circumstances;  and 
have  shown  that  England  maintained  the  policy  so 
long  at  a  loss  to  herself  as  well  as  her  Ineighbors. 
Other  nations  can  say,  if  they  please,  "  "We  will 
maintain  protection  as  long  as  England  did,  and 
then  follow  her  example  in  giving  it  up."     But  if 


406  ELEMENTS  OF  POLITICAL  ECONOMY. 

they  do  this,  they  will  do  it  at  a  loss,  as  England 
did,  and  too  late  bemoan  their  folly,  as  England 
does.  Said  Mr.  Gladstone,  Chancellor  of  the  Eng- 
lish Exchequer,  in  1856,  —  "  There  is  one  domestic 
feature  which  I  wish  it  were  in  our  power  effectually 
to  exhibit  to  the  governments  and  inhabitants  of  for- 
eign countries.  They  know  by  statistics,  which  are 
open  to  the  world,  the  immense  extension  which  our 
commerce  has  attained  under  and  by  virtue  of  free- 
dom of  trade,  and  the  great  advancement  that  has  hap- 
pily been  achieved  in  the  condition  of  the  people;  but 
they  do  not  know  what  it  has  cost  us  to  achieve  this 
beneficial,  nay,  blessed  change;  what  time,  what 
struggles,  what  interruptions  to  the  general  work  of 
legislation ;  what  animosities  and  divisions  among 
the  great  classes  which  make  up  the  nation ;  what 
shocks  to  our  established  mode  of  conducting  the 
government  of  the  country ;  what  fears  and  risk,  at 
some  periods,  of  public  convulsion.  These  were  the 
fine  and  penalty  we  paid  for  long  adherence  to  folly. 
We  paid  this  fine  and  penalty  upon  returning  to  the 
path  of  wisdom,  which  too  late  we  wished  we  had 
never  left.  It  is  not  easy  to  calculate  its  amount, 
but  if  it  could  be  exactly  reckoned,  and  fully  ex- 
posed to  the  eyes  of  other  nations,  our  juniors  in 
trade,  it  might  supply  them  with  a  timely  warning 
against  imitating  our  former  errors,  and  with  the 
best  encouragement  to  the  adoption,  before  they 
become  entangled  in  the  creation  of  artificial  inter- 
ests, of  our  recent  and  better  example." 

But  it  is  said,  as  if  that  were  sufficient  to  con- 
demn free  trade,  that  England  adopted  it  out  of 
pure  selfishness.     Of  course  she  did ;  and  other  na- 


ON  FOREIGN  TRADE.  407 

tions  will  also  adopt  it  from  the  same  motive.  No 
other  motive  is  appropriate  in  the  premises.  The 
idea,  disseminated  by  protectionists,  that  it  requires 
a  millenium  for  free  trade  to  work  in,  is  wholly  falla- 
cious ;  it  requires  an  enlightened  selfishness,  and 
nothing  more;  and  it  is  one  of  the  grand  wonders 
of  Providence,  that  the  elements  of  society  are  so 
wisely  prearranged,  that,  within  the  sphere  of  ex- 
change, the  welfare  of  all  is  promoted  through  the 
enlightened  selfishness  of  each.  Trade  is  always  self- 
ish, just  as  much  so  under  freedom  as  under  protec- 
tion; it  is  a  sphere  all  whose  operations  are  subject  to 
the  legitimate  control  of  conscience,  but  it  is  not,  and 
never  was  designed  to  be,  a  sphere  of  sympathy  and 
benevolence :  these  have  a  sphere  of  their  own,  above 
and  beyond  the  sphere  of  exchange.  When  a  man 
gives,  let  him  give,  and  enjoy  the  luxury  of  doing 
good ;  when  a  man  buys  and  sells,  let  him  honestly, 
but  with  an  eye  to  self-interest  only,  buy  and  sell 
and  get  gain. 

The  Zoll- Verein,  or  Revenue-Union  of  the  German 
States,  presents  a  splendid  example  of  the  pros- 
perity which  follows  in  the  train  of  free  exchange. 
The  system  commenced  with  Prussia  in  1818,  and 
has  been  gradually  extended  by  the  voluntary  accep- 
tance of  it  on  the  part  of  all  the  German  States, 
except  Austria,  the  free  cities  of  Liibeck,  Hamburg, 
and  Bremen,  and  two  or  three  of  the  small  northern 
duchies.  All  interior  custom-houses  and  barriers 
are  swept  away  within  the  territory  included  in  the 
Zoll- Verein  ;  and  a  series  of  duties,  not  to  exceed  in 
any  case  ten  per  cent,  ad  valorem  are  laid  on  foreign 
manufactures,  of  which  nothing  is   prohibited,  the 


408  ELEMENTS  OF  POLITICAL  ECONOMY. 

proceeds  going  into  a  common  treasury,  and  then 
distributed  among  the  various  members  of  the  union 
on  the  basis  of  their  population.  The  rate  of  im- 
posts on  foreign  goods  is  varied  from  time  to  time 
by  the  Zoll-Verein  Congress,  but  ten  per  cent,  is  the 
maximum,  and  the  interests  of  the  revenue  are  con- 
sulted in  adjusting  the  rates  below  that:  since  1851 
the  raw  materials  coming  from  abroad  are  admitted 
free,  or  nearly  so.  Whether  these  facts  justify  Mr. 
Carey  in  regarding  the  Zoll-Verein  as  affording  an 
example  of  protective  duties,  the  intelligent  reader 
must  judge.  I  call  these  conditions,  under  which 
34,000,000  of  people  are  allowed  to  trade  with  abso- 
lute freedom  among  themselves,  and  with  all  the 
world  outside  at  rates  never  exceeding  ten  per  cent., 
very  free  conditions  of  trade ;  and  if  Mr.  Carey  is 
content  that  such  rates  as  these,  which  he  calls 
"protective,"  should  be  established  for  the  United 
States,  where  at  present  the  average  rate  on  duti- 
able foreign  goods  falls  scarcely  if  at  all  below  fifty 
per  cent.,  nobody  vi^ill  quarrel  with  him  about  the 
word.  Germany  is  prosperous  beyond  all  precedent 
under  the  stimulating  influence  of  free  exchange. 
Every  State,  without  exception,  now  receives  a  larger 
revenue  than  it  did  before  it  joined  the  Zoll-Verein, 
and  the  production  of  the  great  staples  of  industry 
has  prodigiously  increased.  The  production  of  iron 
increased  from  3,708,432  cwt.  in  1850,  to  10,207,098 
cwt.  in  1858;  and  the  importation  of  foreign  iron 
increased  within  the  same  dates  from  2,455,000  cwt. 
to  6,587,000  cwt. ;  an  interesting  proof  that  the  free 
introduction  of  foreign  articles  does  not  depress,  but 
rather  stimulate,  the  production  of  the  same  articles 
at  home. 


ON   FOREIGN  TRADE.  409 

I  have  dwelt  the  longer  on  this  question  of  free 
trade,  because  it  is  a  practical  one  now  in  this  coun- 
try, for  whose  right  solution  every  citizen  should  be 
anxious.  Some  additional  light  will  be  thrown  upon 
the  subject  in  each  of  the  three  remaining  chapters. 


410  ELEMENTS  OF  POLITICAL  ECONOMY. 


CHAPTER    XIV. 

ON  THE  MERCANTILE   SYSTEM. 

There  have  been  three  epochs  in  the  progress  of 
the  science  of  Exchange.  Each  of  these  has  been 
marked  by  a  theory  of  its  own,  of  which  the  two 
earlier  were  radically  incorrect,  yet  prepared  the  way 
for  the  third  and  true  system.  We  have  already 
sufficiently  considered  the  first  of  these  theories, 
which  assumed  that  gold  and  silver  are  the  only 
wealth,  and,  consequently,  that  the  only  way  for  a 
nation  to  grow  rich  was  to  foster  the  importation 
and  prohibit  the  exportation  of  the  precious  metals. 
The  second  commercial  theory  was  more  refined 
and  complicated ;  we  have  already  spoken  of  it  as 
the  Mercantile  System,  and  partially  explained  its 
fundamental  principle.  The  principle  was  to  pre- 
serve the  balance  of  trade,  to  make  the  exports 
greater  than  the  imports,  so  that  the  balance  should 
come  back  in  gold  and  silver.  The  whole  system  is 
based  on  the  absurd  supposition  that  a  merchant 
will  carry  abroad  goods  worth  at  home  a  certain 
sum,  merely  that  he  may  bring  back  goods  and 
money  worth  as  much.  Why,  on  that  principle, 
should  he  carry  forth  goods  at  all  ? 

The  nature  of  trade,  as  mutually  advantageous, 
was  not  understood.  After  every  fair  mercantile 
transaction,  both  parties  are  richer  than  before.    The 


ON  THE  MERCANTILE  SYSTEM.  411 

more  genuine  exchanges  there  are  between  two 
countries  the  better,  because  the  motive  for  an  ex- 
change is  always  and  everywhere  the  mutual  inter- 
est of  the  parties.  The  benefit  of  the  exchange  is 
shared  by  both,  otherwise  there  would  be  no  ex- 
change. 

But  the  Mercantile  System  led  each  nation  to 
suppose,  that,  by  manoeuvre  and  finesse,  it  could 
obtain  more  than  its  natural  share  of  advantage. 
England,  for  example,  in  her  trade  with  France, 
found  that,  by  natural  tendency,  she  bought  as  much 
of  French  wines  and  silks  as  she  sold  France  of 
hardware  and  woollens.  Instead  of  being  satisfied 
with  a  legitimate  and  mutually  advantageous  trade, 
the  English,  under  the  promptings  of  the  Mercantile 
System,  say,  ''  This  will  never  do.  This  will  never 
do.  There  is  no  balance  in  our  favor.  We  must 
sell  to  France  more  than  we  buy  of  her,  or  else  we 
get  no  balance  of  trade."  Accordingly  restrictions 
are  laid  on  some  French  goods.  Their  introduction 
is  either  prohibited,  or  heavy  duties  are  levied  on 
them,  in  order  to  lessen  the  quantity  imported.  This 
is  done  in  the  hope  of  selling  to  the  French  as  much 
as  before,  but  of  buying  less,  this  is,  less  French 
goods ;  so  that  the  difference  must  be  paid  in  gold 
and  silver. 

All  that  was  mighty  well !  But  unfortunately  the 
gold  and  silver,  even  if  they  should  get  it,  was  no 
whit  better  than  the  French  goods,  and  would  prob- 
ably go  right  back  to  France  in  the  purchase  of  such 
goods.  And  unfortunately  also  the  French  were 
adepts  in  the  Mercantile  System ;  they  wanted  a 
favorable  balance  too.     They  must  sell   more  than 


412  ELEMENTS  OF  POLITICAL  ECONOMY. 

they  buy.  Their  exports  must  exceed  their  imports. 
Why  not?  And  accordingly  they  prohibit  some 
species  of  English  goods,  or*  burden  them  with  a 
heavy  duty  :  the  English  retaliate  by  new  restric- 
tions on  the  products  of  French  industry,  and  are 
again  in  turn  retaliated  upon.  Thus  they  go  on 
tinkering  and  tormenting  trade  in  the  vain  hope  of 
some  imaginary  balance! 

Because  England  and  ^France  are  adjacent,  and 
because  their  natural  productions  and  acquired  in- 
dustry are  so  very  diverse,  they  are  naturally  to  an 
immense  extent  mutual  buyers  and  sellers.  France 
is  gifted,  perhaps  as  much  as  any  country  upon 
earth,  in  point  of  soil,  climate,  and  natural  produc- 
tions. She  produces  with  the  greatest  facility,  and 
in  the  greatest  abundance,  wines  and  the  cereal 
grains;  and  has  unusual  advantages  also  for  the 
culture  of  the  mulberry  and  the  nianufacture  of 
sHk. 

England  is  not  thus  blessed  by  Nature ;  but  she 
has  freedom,  and  industry,  and  energy,  and  skill ; 
these  have  made  her  for  centuries  the  greatest  man- 
ufacturing and  commercial  country  in  the  world. 
She  has  always  had  those  things  to  sell  which 
France  wanted  to  buy,  and  has  always  wanted  to 
buy  those  things  which  France  has  had  to  sell.  Ex- 
changes between  two  such  countries  are  natural  and 
inevitable.  If  the  governments  undertake  to  forbid 
them,  then  the  business  will  be  done  by  smugglers, 
though  with  hazard  and  loss. 

Now,  the  Mercantile  System  disturbed  and  well- 
nigh  destroyed  this  natural  and  profitable  trade. 
To  be  sure,  England  could  buy  her  wines  of  France 


ON  THE  MERCANTILE  SYSTEM.  413 

much  cheaper  and  of  better  quality  than  of  Portu- 
gal ;  but  then,  the  balance  of  trade  with  France  was 
supposed  to  be  less  favorable  than  with  Portugal ; 
and  therefore  the  French  wines  were  prohibited, 
and  the  monopoly  of  supplying  the  English  market 
was  given  to  the  Portuguese.  The  English  drank 
poorer  wines  at  a  greater  expense.  If  this  were  all, 
it  would  not  have  been  so  bad;  but  the  French,  to 
retaliate  and  to  restore  the  balance,  prohibited  Eng- 
lish w^oollens.  Thus  the  English  were  not  only 
obliged  to  regale  themselves  on  poor  wine  at  a  high 
price,  but  to  lose  an  excellent  market  for  woollen 
goods.  The  French  lost  not  only  the  best  market 
for  their  wines,  but  must  purchase  their  woollens 
elsewhere  at  an  enhanced  cost.  It  was  a  dead  loss 
all  round  —  a  gratuitous  loss  without  any  compen- 
sation whatever. 

So  far  has  this  regulating  mania  been  carried  at 
times,  that  almost  all  legitimate  commerce  ceased 
between  the  two  countries.  Adam  Smith  tells  us 
that,  in  his  time,  that  is  less  than  a  hundred  years 
ago,  smugglers  were  the  principal  importers  of  Brit- 
ish goods  into  France,  and  of  French  goods  into 
Britain.  So  reluctant  was  England  to  buy  of  France, 
so  fully  were  her  statesmen  under  the  influence  of 
the  prejudice  that  the  prosperity  of  her  neighbors 
was  incompatible  with  her  own,  that  Parliament,  as 
late  as  William  and  Mary's  time,  decreed  that  the 
French  trade  was  a  nuisance. 

(1.)  This  laying  extraordinary  restraints  on  the 
importation  of  goods  from  those  countries  with 
which  the  balance  was  supposed  to  be  unfavor- 
able, was  one  device  of  the  Mercantile  System  to 


414  ELEMENTS  OF  POLITICAL  ECONOMY. 

increase  the  quantity  of  gold  and  silver.  It  was 
unfortunately  not  the  only  nor  the  worst  one.  The 
great  idea  was,  you  perceive,  to  discourage  importa- 
tion and  to  encourage  exportation,  in  order  that  the 
country  might  grow  rich  by  the  stream  of  gold  and 
silver  which,  it  was  supposed,  would  pour  in  to  pay 
the  balance  between  the  large  exports  and  the  small 
imports. 

(2.)  An  obvious  expedient  was  to  prohibit  alto- 
gether, or  to  burden  with  very  high  duties,  the  intro- 
duction of  all  such  goods  as  could  be  produced  at 
home.  If  we  can  produce  the  articles  at  home,  then 
we  shall  not  have  to  import  them,  and  that  will  help 
the  balance.  Under  the  influence  of  this  feeling, 
England,  damp  and  cold,  in  the  very  teeth  of  Na- 
ture's protests,  undertook  to  rival  France  in  the 
culture  of  silk.  Heavy  restraints  were  laid  on  for- 
eign silks,  and  the  monopoly  of  supplying  the  home 
market  was  given  to  her  own  manufacturers.  Cer- 
tainly, silk  can  be  made  in  England,  of  a  somewhat 
inferior  quality  and  at  a  somewhat  greater  cost  than 
in  sunnier  climes.  To  overcome  these  disadvan- 
tages, what  was  needed  was  the  healthy  stimulus  of 
competition.  If  things  had  been  left  to  take  their 
natural  course,  and  foreign  silks  had  been  admitted 
freely,  the  home  manufacturers  would  have  been  put 
upon  their  mettle  to  discover  improved  processes,  to 
invent  machinery,  to  make  up  the  disadvantages  of 
Nature  by  expedients  of  Art.  The  plant  never  be- 
comes hardy  and  strong  that  does  not  root  itself 
amid  the  breezes  of  heaven ;  so  neither  does  a 
branch  of  business  grow  up  into  self-sustaining  and 
vigorous  life   without  the    stimulating   breezes   of 


ON  THE  MERCANTILE  SYSTEM.  415 

competition.  Of  this  the  case  in  hand  affords  an 
excellent  illustration.  For  more  than  a  century  the 
silk  manufacture  of  England,  fenced  round  and 
protected,  as  it  was  called,  by  these  restrictive  and 
prohibitory  duties,  languished,  pined,  and  at  times 
almost  expired;  for  the  simple  reason  that  the  man- 
ufacturers, instead  of  relying  upon  their  own  inven- 
tion, skill,  and  energy,  looked  to  the  government  for 
support,  and  to  an  artificial  monopoly ;  and  when  at 
length  in  1826  this  foolish  system  was  abandoned, 
and  the  silk  interest  was  told  that  it  must  look  out 
for  itself,  and  the  ports  were  thrown  open  to  foreign 
silk,  then  first  the  English  silk  culture  began  to 
thrive ;  it  has  thriven  from  that  day  to  this,  until 
now  we  are  told  that  in  the  plainer  and  firmer  kinds 
of  silk  the  English  surpass  the  French,  and  that 
there  is  a  considerable  exportation  of  these  English 
silks  into  France  itself. 

As  an  illustration  of  the  mischiefs  which  the  Mer- 
cantile System  everywhere  introduced  into  the  realm 
of  industry,  let  us  look  at  this  instance  a  little  more 
closely.  During  the  continuance  of  the  monopoly, 
the  English  consumers  of  silk  were  obliged  to  pay 
a  very  high  price  for  an  inferior  article.  To  whose 
benefit  did  this  high  price  accrue  ?  It  was  designed 
to  accrue  to  the  benefit  of  the  home  manufacturer. 
The  sole  object  in  laying  the  prohibitory  duties 
was  to  prevent  importations,  and  to  leave  the  home 
market  entire  to  the  home  manufacturer.  Precisely 
at  this  point  we  see  how  the  whole  doctrine  of  Pro- 
tection grew  out  of  the  Mercantile  System.  The 
Mercantile  System  wished  to  repress  importations 
for  the  sake  of  the  balance  of  trade ;  but  if  needful 


416  ELEMENTS  OF  POLITICAL  ECONOMY. 

articles  cannot  be  imported,  they  must  be  made  or 
grown  at  home ;  and  in  order  to  be  made  or  grown 
at  home,  the  makers  or  growers  must  be  encouraged. 
The  monopoly  of  the  home  market  was  precisely 
this  encouragement ;  and  it  is  owing  to  this  single 
circumstance  that  influential  classes  in  every  mer- 
cantile community  have  supposed  themselves  bene- 
fited by  this  monopoly,  that  the  doctrine  of  Protec- 
tion has  lingered  so  long  in  the  general  mind.  It  is 
easy,  however,  to  see  that  this  benefit  is  in  most 
cases  wholly  imaginary;  and  that  the  high  prices 
paid  by  the  consumers  do  not,  on  the  whole, 
strengthen  the  manufacture,  as  has  been  supposed. 
If  the  government  had  gone  further,  and  given 
those  who  had  already  commenced  the  culture  of 
silk  the  monopoly  against  their  own  countrymen  as 
well  as  against  foreigners,  so  that  nobody  could 
engage  in  the  manufacture  except  those  already 
engaged  in  it,  then,  indeed,  these  would  grow  rich 
at  the  expense  of  their  countrymen.  Government 
would  take  money  out  of  the  pocket  of  every  con- 
sumer of  silk,  and  put  it  into  their  pocket,  and  the 
whole  benefit  of  the  high  prices  would  accrue  to 
the  manufacturers  alone.  But  governments  have 
rarely  gone  so  far  as  this.  They  have  excluded  for- 
eign competition,  but  not  prohibited  home  compe- 
tition ;  and  the  result  has  been,  that  the  high  duties 
which  excluded  the  foreign  goods,  and  the  conse- 
quent high  prices  of  the  domestic  product,  have 
drawn  many  men  and  much  capital  into  that  busi- 
ness, in  the  hope  of  an  'extraordinary  profit.  The 
business  has  been  artificially  stimulated,  and  capital 
has  been  thrust  into  it  which  would  not  have  gone 


ON  THE  MERCANTILE  SYSTEM.  417 

of  its  own  accord.  The  thing  has  been  overdone ; 
and  the  feverish  home  competition,  in  its  anxiety  to 
reap  monopoly  prices,  has  brought  down  prices  far 
below  the  paying  figure.  The  business  has  col- 
lapsed from  its  very  inflation ;  and  thus  alternate 
chills  and  fever  have  shaken  the  life  out  of  it. 

But  the  Mercantile  System,  and  the  restrictive 
policy  that  sprung  from  it,  obtained  universal  cur- 
rency. The  statute-books  of  every  nation  in  Europe 
are  defaced  by  the  absurdest  laws  and  regulations 
respecting  manufactures  and  commerce.  It  was 
ordered,  for  example,  by  an  act  passed  in  England 
in  1678,  that  all  dead  bodies  should  be  wrapped  in 
woollen  shrouds !  This,  you  must  know,  was  for 
the  encouragement  of  the  woollen  manufacture ! 

The  artisans  in  the  cities  and  towns  were  formed 
into  guilds,  that  is,  incorporated  societies,  and  to 
each  guild  was  given  the  monopoly  of  the  market, 
in  its  branch  of  industry.  No  man  could  practise 
the  art  of  a  shoemaker  in  Antwerp  or  London  with- 
out the  consent  of  the  guild  of  St.  Crispin ;  and  the 
guild  itself  determined  the  number  of  apprentices  to 
each  artisan,  the  years  he  should  serve,  the  condi- 
tions under  which  he  might  become  a  master;  in 
short,  determined  everything  respecting  the  trade  by 
constitution  and  bye-laws.  The  governments,  justly 
regarding  these  artisans  as  the  most  industrious  and 
deserving  of  their  subjects,  granted  them  many  priv- 
ileges, which,  however,  were  no  less  contrary  to 
sound  principles  than  the  rest  of  the  system.  That 
they  might  obtain  cheap  provisions,  the  export  of 
corn  was  forbidden  ;  and  thus  agriculture  was  pre- 
vented from  selling  its  products  in  the  best  market, 

27 


418  ELEMENTS  OF  POLITICAL  ECONOMY. 

wherever  that  market  might  be  found.  That  they 
might  obtain  the  raw  materials  of  their  manufac- 
tures cheap,  the  export  of  these  was  strictly  for- 
bidden. The  tanner  and  currier,  for  example,  must 
sell  his  product  to  the  "  gentle  Craft  of  Leather," 
and  had  no  other  market. 

The  general  doctrine  of  fostering  exportation  was 
infringed  on  in  these  instances,  because  it  was 
thought  that  there  would  be  a  greater  ultimate  ex- 
port of  manufactured  products,  if  the  raw  materials 
of  these  were  forbidden  to  be  exported,  and  cheap 
provisions  were  secured  to  the  artisans. 

In  order  to  encourage  agriculture,  most  European 
countries,  in  accordance  with  the  doctrines  of  the 
Mercantile  System,  passed  corn-laws  forbidding  the 
importation  of  foreign  grain,  each  nation  wishing  to 
raise  its  own  subsistence  from  its  own  soil.  The 
consequence  of  this  was  that  the  landholders  secured 
the  monopoly  of  supplying  the  home  market  with 
food ;  which  of  course  greatly  enhanced  the  pri6e  to 
all  consumers,  especially  in  times  of  scarcity.  The 
increased  price  of  bread,  which  rich  and  poor  must 
pay  alike,  was  but  a  part  of  the  evil  consequences. 
No  nation  is  so  sure  of  its  subsistence,  when  it  en- 
deavors to  raise  the  whole  of  that  subsistence  at 
home,  as  when  it  leaves  the  channels  of  importation 
open  for  foreign  supplies.  When  the  trade  in  corn 
is  free,  the  dearth  in  one  country  is  instantly  sup- 
plied by  the  superabundance  of  another,  and  that 
by  natural  laws  as  beautiful  and  invariable  in  their 
operation  as  the  laws  that  govern  the  heavenly 
bodies.  Interference  with  natural  law  in  no  direc- 
tion is  so  mischievous  and  culpable  as  in  this.     Is  it 


ON  THE  MERCANTILE  SYSTEM.  419 

not  plain  to  common  sense  that  that  nation  is  most 
likely  to  obtain  its  food  with  regularity  and  in  plenty 
which  draws  its  supplies  from  the  widest  surface? 
Massachusetts,  for  example,  does  not  begin  to  feed 
its  own  population ;  but  does  any  one  suppose  her 
people  are  anymore  likely  to  starve  on  that  account? 
She  can  buy  food  with  the  products  of  her  industry. 
Her  calicoes  and  cassimeres,  her  hardware  and  cut- 
lery, her  nick-nacks  and  notions,  will  buy  wheat  not 
only  in  the  marts  of  the  West,  but  in  Poland  and 
Russia  as  well.  She  is  sure  to  be  fed,  because  she 
has  wherewithal  to  buy  food ;  more  sure  to  be  fed 
than  if  she  compelled  the  industry  of  her  people  to 
abandon  the  more  profitable  mill-stream  and  factory, 
shop,  and  foundry,  to  extort  from  these  rocky  hill-sides 
the  reluctant  grains. 

England,  too,  in  1849,  removed  the  last  vestige  of 
corn-laws  from  her  statute-book,  and  now  imports 
flour  freely  from  the  Black  Sea  and  from  the  Baltic, 
from  France  and  from  the  United  States.  Who 
supposes  that,  if  England  did  not  raise  a  kernel  of 
wheat,  she  would  not  be  as  certain  of  her  daily 
bread  as  the  people  of  Poland  or  of  Michigan? 
But  one  may  say,  in  case  of  war,  she  had  better 
raise  her  food  at  home.  But  it  is  absurd  to  suppose 
that  any  nation  would  be  at  war  with  all  the  world 
at  once ;  and  we  may  be  assured  that  the  portion 
not  belligerent  would  be  eager  to  furnish  the  sup- 
plies. And  besides,  plenty  of  wheat  would  enter 
England  if  the  English  only  wanted  it,  though  all 
the  navies  of  the  world  should  blockade  the  fast- 
anchored  isle.  Every  creek  and  headland  would  be 
alive  with  the  silent  and  secret  but  busy  agents  of  a 
clandestine  trade. 


420  ELEMENTS  OF  POLITICAL  ECONOMY. 

The  simple  consideration  that  condemns  this  sec- 
ond expedient  of  the  Mercantile  System,  namely, 
the  prohibiting  the  importation  of  such  commod- 
ities as  can  be  produced  at  home,  and  the  Protective 
policy  inseparably  connected  with  it,  is,  that  it  in- 
volves a  dead  loss  to  the  productive  powers  of  the 
world.  There  is  in  the  world  a  certain  amount  of 
capital  and  a  certain  amount  of  industry.  These, 
if  left  to  their  own  keen  sense  of  interest,  will  make 
the  aggregate  amount  of  production  in  the  world  as 
great  as  that  amount  of  capital  and  industry  can 
make  it.  If,  then,  a  free  commerce  distribute  this 
aggregate  production  over  the  earth  in  accordance 
with  the  simple  law  of  supply  and  demand,  we  shall 
have  not  only  the  greatest  production,  but  the  most 
perfect  distribution. 

But  if  now  government  steps  in,  and  withdraws 
capital  and  industry  from  their  freely  chosen  posts 
of  activity,  prohibits  exchanges  that  would  otherwise 
be  made,  and  commands  commodities  to  be  manu- 
factured or  grown  in  localities  where  they  would  not 
naturally  be  manufactured  or  grown,  then  certainly 
the  aggregate  production  of  the  world  is  lessened, 
and  its  distribution  is  less  perfect. 

(3.)  The  Mercantile  System  had  two  other  expe- 
dients which  were  frequently  employed  to  subserve 
the  ends  of  its  gi-and  principle.  For  the  sake  of 
increasing  the  exports,  and  thus  improving  the  bal- 
ance of  trade,  bounties  were  given  to  encourage 
the  export  and  sale  of  native  fabrics  in  foreign 
markets.  A  bounty,  we  understand,  is  a  sum  of 
money  paid  outright  by  the  government  to  the  ex- 
porters of  native  fabrics,  in   order  to   enable  them 


ON  THE  MERCANTILE  SYSTEM.  421 

to  sell  their  goods  as  cheap  or  cheaper  than  their 
rivals  in  the  foreign  market.  England,  for  example, 
was  so  anxious  to  sell  her  goods  to  foreigners,  that 
she  regularly  paid  her  merchants  for  selling  the 
goods  at  a  loss.  "  The  price  of  these  goods  in  that 
market,"  says  the  merchant,  "will  not  reward  my 
capital  with  the  ordinary  profit."  "  Never  mind," 
says  England,  **  sell  away,  and  I  will  make  up  your 
loss  by  a  bounty!"  Was  not  that  a  rare  and  brill- 
iant way  of  enriching  the  country  ?  By  natural 
laws,  a  branch  of  industry  ceases  as  soon  as  it  be- 
comes unprofitable ;  but  by  the  system  of  bounties 
a  trade  was  perpetuated  of  which  the  expense  was 
greater  than  the  returns,  of  which  every  operation  de- 
stroyed a  portion  of  the  capital  employed  in  it.  The 
loss  was  made  up  to  the  operators  by  government; 
in  other  words,  the  people  were  taxed  to  pay  it. 

(4.)  The  fourth  and  last  expedient  of  the  Mer- 
cantile System  was  to  help  the  balance  of  trade  by 
founding  colonies,  that  the  mother  country  might 
enjoy  the  monopoly  of  their  trade,  and  force  them 
to  resort  exclusively  to  her  markets.  All  the  English 
colonies  on  this  continent  were  bound  by  the  rigid 
fetters  of  this  colonial  system.  Up  to  the  date  of 
American  Independence,  Virginia  and  Massachu- 
setts must  buy  all  they  wished  to  buy  in  English 
markets,  and  carry  all  they  had  to  sell  to  English 
ports.  Spain  and  France  extended  the  same  co- 
lonial monopoly,  with  even  more  of  inflexibility,  over 
their  American  and  West  India  settlements ;  and  it 
was  considerations  growing  out  of  this  colonial 
policy  which  gave  birth  to  the  American  Revolu- 
tion ;  and  that  war  was  waged  not  more  for  the 
interests  of  humanity  than  for  the  freedom  of  trade. 


422  ELEMENTS  OF  POLITICAL  ECONOMY. 


CHAPTER   XV. 

ON  AMERICAN  TARIFFS. 

So  long  as  the  United  States  were  colonies  of 
Great  Britain,  their  commerce  was  bound  in  the  rigid 
fetters  of  the  Mercantile  System.  We  have  already- 
seen  in  the  last  chapter  that  colonies  were  one  of  the 
devices  of  the  Mercantile  System  to  secure  a  favor- 
able "  balance  of  trade."  If  the  maxim  be  to  sell  as 
much  as  possible  and  buy  as  little  as  possible,  then 
colonies,  which  could  be  compelled  to  receive  the 
goods  of  the  mother  country,  must  be  commercially 
valuable.  Accordingly,  all  the  commercial  countries 
of  Europe,  and  particularly  Spain  and  England, 
adopted  a  colonial  policy  that  sprung  directly  from 
this  fundamental  maxim.  They  valued  their  colonies 
as  affording  broad  markets  for  the  sale  of  products, 
and  also  because  they  could  monopolize  the  articles 
produced  by  the  colonists  themselves.  In  general, 
the  colonists  were  compelled  to  sell  all  they  had  to 
sell  to  the  mother  country,  and  to  buy  all  they  had 
to  buy  of  the  mother  country ;  even  though  the  arti- 
cles thus  bought  were  not  the  produce  of  the  mother 
country,  but  must  first  be  imported  there  and  then 
exported  thence  to  the  colonies.  Until  the  Revolu- 
tion, a  Boston  ship,  for  example,  could  not  sail  di- 
rectly to  China  for  teas,  but  the  teas  must  first  be 


ON  AMERICAN   TARIFFS.  423 

brought  to  England  in  British  ships,  must  pay  a 
duty  there,  and  then  be  reexported  to  the  colonies. 

As  early  as  1650  this  monopoly  system  was  en- 
tered upon  by  the  then  republican  Parliament  of 
England.  The  colonies  had  already  overcome  the 
difficulties  incident  to  their  first  settlement,  had 
begun  to  increase  rapidly  in  wealth,  and  their  com- 
merce had  become  so  considerable  as  to  afford  a 
temptation  to  restrict  its  freedom  and  to  endeavor 
to  make  it  peculiarly  advantageous  to  the  mother 
country.  In  the  year  named  an  act  was  passed 
restricting  the  export  and  import  trade  of  the  colo- 
nies to  British  ships  and  to  ships  built  in  the  colo- 
nies. No  foreign  keel  could  enter  a  colonial  harbor, 
either  to  buy  or  to  sell. 

Ten  years  later,  that  is  in  1660,  the  famous  "  Nav- 
igation Act "  was  passed,  which  with  small  modifi- 
cations continued  to  be  the  maritime  law  of  England 
down  to  1815 ;  which  was  essentially  modified  in 
1825 ;  and  the  small  remains  of  which  have  only 
recently  been  expunged  fi-om  the  statute-book. 

This  Navigation  Act  is  of  great  interest  to  Amer- 
icans, because  the  American  Revolution  grew  directly 
out  of  it.  Says  Bancroft,  "American  Independence, 
like  the  great  rivers  of  the  country,  had  many  sources; 
but  the  head  spring  which  colored  all  the  stream  was 
the  Navigation  Act."  It  was  enacted  that  certain 
enumerated  articles,  which  included  all  the  principal 
productions  of  the  colonies,  could  not  be  exported 
directly  to  any  foreign  country,  but  must  first  be 
sent  to  Great  Britain,  and  there  unladen,  before  they 
could  be  forwarded  to  their  final  destination.  It 
amounted  to  the  same  thing  as  prohibiting  all  exports 


424  ELEMENTS  OF  POLITICAL  ECONOMY. 

except  to  the  mother  country.  The  chief  products 
of  their  industry  the  colonists  could  not  export  to 
any  place  but  Great  Britain,  not  even  to  Ireland; 
neither  sugar,  nor  tobacco,  nor  cotton,  nor  wool,  nor 
indigo,  nor  ginger,  nor  dye-woods,  nor  molasses,  nor 
rice,  nor  peltry,  nor  ore,  nor  pitch,  nor  tar,  nor  turpen- 
tine, nor  masts,  nor  yards,  nor  bowsprits,  nor  coffee, 
nor  cocoa-nuts,  nor  whale-fins,  nor  hides,  nor  ashes. 

Nor  was  this  all.  England  constituted  herself  not 
only  the  sole  market  for  American  products,  but  also 
the  sole  storehouse  for  American  supplies.  The 
colonies  must  not  only  sell  exclusively  in  British 
markets,  but  they  must  also  buy  exclusively  in  Brit- 
ish markets.  It  was  enacted,  that  "  no  commodity 
of  the  growth,  production,  or  manufacture  of  Europe, 
shall  be  imported  into  the  British  plantations,  but 
such  as  are  laden  and  put  on  board  in  England, 
Wales,  or  Berwick-upon-Tweed,  and  in  English- 
built  shipping,  whereof  the  master  and  three  fourths 
of  the  crew  are  English." 

The  preamble  to  this  statute,  which  was  supple- 
mental to  the  Navigation  Act,  is  curious,  and  assigns 
as' the  motive  of  the  restriction,  "the  maintaining  a 
greater  correspondence  and  kindness  between  the 
subjects  at  home  and  those  in  the  plantations ;  keep- 
ing the  colonies  in  a  firmer  dependence  on  the 
mother  country;  making  them  yet  more  beneficial 
to  it  in  the  further  employment  and  increase  of  Eng- 
lish shipping  and  in  the  vent  of  English  manufact- 
ures and  commodities ;  rendering  the  navigation  to 
them  more  safe  and  cheap;  and  making  this  kingdom 
a  staple,  i^ot  only  of  the  commodities  of  the  planta- 
tions, but  also  of  the  commodities  of  other  countries 


ON  AMERICAN  TARIFFS.  425 

and  places  for  their  supply ;  it  being  the  usage  of 
other  nations  to  keep  their  plantation-trade  exclu- 
sively to  themselves." 

In  close  connection  with  these  commercial  restric- 
tions, it  was  a  leading  point  in  the  colonial  policy  to 
discourage  all  attempts  of  the  colonists  to  manufact- 
ure for  themselves.  "  That  the  country  which  was 
the  home  of  the  beaver  might  not  manufacture  its 
own  hats,  no  man  in  the  colonies  could  be  a  hatter 
or  a  journeyman  at  that  trade,  unless  he  had  served 
an  apprenticeship  of  seven  years.  No  hatter  might 
employ  more  than  two  apprentices.  No  American 
hat  might  be  sent  from  one  plantation  to  another. 
America  abounded  in  iron  ores  of  the  best  quality, 
as  well  as  in  wood  and  coal ;  slitting-mills,  steel- 
furnaces,  and  plating-forges,  to  work  with  a  tilt- 
hammer,  were  prohibited  in  the  colonies  as  nui- 
sances." Similar  restrictions  existed  in  respect  to 
wool  and  weaving;  no  wool,  or  any  manufacture  of 
it,  could  be  carried  across  the  line  of  one  province  to 
another ;  and  a  British  sailor,  wanting  clothes  in  a 
colonial  harbor,  was  forbidden  to  buy  there  more 
than  forty  shillings'  worth.  To  print  the  English 
Bible  in  the  colonies  would  have  been  a  high-handed 
infringement  of  the  law  ;  and  while  that  book  was 
reverently  read  around  almost  every  hearthstone  in 
the  land,  not  a  copy  of  it  was  printed  here  till  we 
became  an  independent  nation. 

So  fully  were  British  statesmen  trammelled  by  the 
ideas  of  this  colonial  system,  that  Lord  Chatham 
himself,  the  best  friend  the  colonies  had  in  England, 
did  not  hesitate  to  say  from  his  place  in  Parliament, 
that  in  a  certain  probable  contingency,  he  would  pro- 


426  ELEMENTS  OF  POLITICAL  ECONOMY. 

hibit  the  colonists  from  manufacturing  even  a  hob- 
nail or  a  horseshoe.  And  Lord  Sheffield,  at  a  later 
period,  said,  "  The  only  use  of  American  colonies  is 
the  monopoly  of  their  consumption,  and  the  carriage 
of  their  produce." 

From  this  degrading  commercial  vassalage  the 
Revolution  set  us  free.  You  will  have  observed  that 
the  economical  consideration  that  condemns  the  co- 
lonial policy  is,  that  it  violates  this  sound  commer- 
cial doctrine,  namely,  that  men  should  buy  in  the 
cheapest  market  and  sell  in  the  dearest,  wherever 
those  markets  are  to  be  found.  If  the  mother  country 
finds  it  necessary  to  employ  prohibitions  to  draw  the 
colony-trade  to  herself,  it  proves  that  that  trade,  if 
left  to  itself,  would  have  found  other  and  more  prof- 
itable channels.  If  Great  Britain  could  have  fur- 
nished us  with  all  commodities  as  cheaply  as  we 
could  procure  them  elsewhere,  then  there  was  no 
need  of  prohibitions  and  penalties  —  we  should  have 
gone  to  her  of  our  own  accord,  as  unerringly  as  the 
needle  points  to  the  pole.  If  she  could  not  furnish 
us  as  cheaply  as  others,  we  were  wronged — it  was  a 
tribute  and  a  tax.  She  made  us  buy  in  a  dearer 
market,  when  a  cheaper  one  was  open. 

So,  if  she  could  pay  as  much  for  our  commodities 
as  we  could  get  for  'them  elsewhere,  there  was  no 
need  of  compelling  us  to  sell  to  her;  we  should,  in 
that  case,  sell  to  her  inevitably.  If  she  would  not 
give  what  we  could  get  elsewhere,  then  we  were 
wronged ;  she  made  us  sell  in  a  cheaper  market, 
when  a  dearer  one  was  open.  Her  prohibitions  then 
were  either  needless,  or  they  were  pernicious. 

But  it  may  be  said  that  our  loss  was  her  gain ; 


ON  AMERICAN  TARIFFS.  427 

that  what  we  paid  extra  as  consumers,  was  to  them 
extra  profit  as  manufacturers  and  merchants.  But 
where  is  the  justice  of  taxing  one  set  of  subjects  or 
citizens  for  the  benefit  of  another  set  of  subjects  or 
citizens  ?  And  how  is  the  wealth  of  the  whole  to  be 
promoted  by  a  transfer  of  gains  from  one  part  to 
another  part? 

A  deeper  consideration  condemns  the  colonial 
policy.  Every  country  has  certain  advantages, 
which,  if  properly  improved,  enable  that  country  to 
defy  the  competition  of  the  world  in  certain  branches 
of  industry.  If  England  could  not  sell  as  cheaply 
as  others  in  the  colonial  ports,  then  she  was  employ- 
ing her  ^capital  and  labor  at  home  less  profitably  than 
she  might  have  employed  them ;  for  if  she  had  em- 
ployed them  upon  those  branches  of  production  for 
which  she  had  natural  and  acquired  advantages,  no 
nation  could  have  undersold  her ;  and  therefore,  if  a 
forced  market  in  the  colonies  encouraged  her  to  con- 
tinue branches  of  industry  that  would  otherwise  have 
been  abandoned,  it  was  a  permanent  loss  to  her  own 
productive  power. 

I  do  not  believe  that  colonial  monopolies  ever 
enriched  a  mother  country,  on  the  whole.  So  perfect 
and  compensating  are  economic  laws,  that  the  losses 
of  one  country  can  never  contfibute  to  the  permanent 
gains  of  another.  The  highest  commercial  prosperity 
of  one  country  implies  and  demands  a  corresponding 
prosperity  in  other  countries.  Commerce  is  ex- 
change. The  richer  your  neighbors  are  in  all  prod- 
ucts, the  richer  you  will  become  by  your  dealings 
with  them.  England's  hereditary  jealousy  of  the 
prosperity  of  France  has  been  as  economically  fool- 


428  ELEMENTS  OF  POLITICAL  ECONOMY. 

ish  as  it  has  been  bitter  and  persistent.  It  is  true  of 
the  family  of  Commerce,  as  it  is  of  the  family  of 
Christ,  "If  one  member  suffer,  all  the  members  suffer 
with  it." 

A  good  commercial  system  was  not  one  of  the 
immediate  fruits  of  the  American  Revolution.  The 
first  government  established  in  this  country,  the  gov- 
ernment of  the  Confederation,  which  lasted  from 
1781  to  1789,  was  not  gifted  by  the  people  with  the 
power  "  to  regulate  commerce."  This  was  one  of 
the  reserved  rights  of  the  States,  which  immediately 
began  to  use  it  in  accordance  with  their  own  views 
of  their  own  interests.  Each  State  laid  its  own 
tariff,  and  undertook  to  regulate  its  own  trade.  The 
results  were  most  disastrous.  Great  Britain,  seeing 
that,  as  a  nation,  we  were  helpless  commercially, 
not  only  refused  to  negotiate  a  commercial  treaty 
with  us,  but  by  an  Order  in  Council,  peremptorily 
excluded  our  ships  from  her  West  India  possessions, 
between  which  and  the  United  States  there  had 
grown  up,  partly  through  some  relaxations  in  the 
Act  of  Navigation,  and  partly  in  violation  of  that 
Act,  a  large  and  most  profitable  trade.  We  were  in 
no  position  to  retaliate.  As  a  nation,  we  had  no 
power  to  exclude  her  ships,  and  thus  force  her  to  a 
position  of  reciprocity.*  The  States  passed  various 
and  conflicting  laws.  If  Massachusetts,  for  example, 
laid  a  duty  on  certain  goods,  and  Rhode  Island  did 
not,  very  little  revenue  would  Massachusetts  draw 
from  that  source ;  the  goods  were  imported  into 
Rhode  Island,  and  then  smuggled  across  the  border. 
Thirteen  independent  States  regulating  the  com- 
merce of  our  seaboard,  induced  endless  confusion,  and 


ON  AMERICAN  TARIFFS.  429 

there  was  no  power  to  remedy  it.  Our  commerce, 
such  as  it  was,  was  ruined. 

'  To  consult  upon  a  remedy  for  this  state  of  things 
was  the  specific  purpose  of  the  meeting  at  Annapo- 
lis, in  1786.  Alexander  Hamilton  was  there  as  a 
delegate  from  New  York.  He  persuaded  the  dele- 
gates to  decline  entering  upon  the  subject  of  com- 
merce, inasmuch  as  it  was  connected  with  other 
great  defects  of  the  Confederation,  to  which  their 
powers  did  not  reach ;  and  drew  up  an  Address  to 
Congress  to  call  another  Convention,  with  ample 
powers  to  go  over  the  whole  ground,  and  to  devise  a 
system  adequate  to  the  exigences  of  the  country. 

Thus  was  summoned  the  Federal  Convention  of 
1787,  which  framed  the  Constitution  under  which  we 
live,  and  which  gave  to  Congress,  that  is,  the  nation, 
the  needful  power  "  to  regulate  commerce." 

The  new  House  of  Representatives,  under  the 
Constitution,  commenced  at  once  to  discuss  and 
frame  a  uniform  national  tariff.  It  passed  in  1789  ; 
and,  with  some  modifications  and  additions  passed 
in  subsequent  years,  constituted  what  I  shall  call,  for 
convenience,  the  Hamilton  tariff.  I  name  it  so,  be- 
cause Hamilton,  as  Secretary  of  the  Treasury,  made 
an  elaborate  Report  to  Congress  on  the  subject,  and 
the  tariff,  as  finally  adjusted,  bore  in  almost  every 
part  the  impress  of  his  moulding  hand.  This  tariff 
lasted  for  twenty-five  years.  It  was  very  successful. 
It  admitted  the  principle  of  protection,  indeed,  but 
mainly  as  subordinate  to  revenue,  and  rarely  for  its 
own  sake,  and  the  general  rate  of  duties  laid  was 
very  low.  For  instance,  in  the  original  bill  as  passed, 
cotton  goods  were  charged  5  per  cent.,  iron  goods 


430  ELEMENTS  OF  POLITICAL  ECONOMY. 

7^  per  cent,  and  woollens  5  per  cent.  These  du- 
ties were  afterwards  somewhat,  but  not  largely,  in- 
creased.^ 

Now  under  this  low  tariff  the  revenue  steadly  in- 
creased, year  by  year.  There  was  almost  no  fluctua- 
tion, but  a  steady   annual  growth  of  income  from 

1790  to  1808,  when  the  Embargo  was  laid,  which,  of 
course,  interrupted  everything.  During  these  eighteen 
years,  the  revenue  gradually  rose  from  $4,000,000  in 

1791  to  over  $16,000,000  in  1808 ;  and,  what  is  of 
greater  consequence,  the  ratio  of  income  to  popula- 
tion is  still  more  striking.  The  revenue  begun  at  the 
rate  of  about  $1,000,000  to  1,000,000  of  people,  and 
steadily  rose  during  the  eighteen  years  to  about 
$2,500,000  to  1,000,000  of  people. 

If  now  we  compare  these  eighteen  years  of  a  low 
revenue  tariff"  with  the  eighteen  years  of  the  pro-* 
tective  tariff",  from  1816,  when  the  new  system  was 
entered  upon,  to  1832  when  it  was  partially  aban- 
doned again,  we  shall  find,  in  the  first  place,  great 
fluctuations  in  the  second  period,  instead  of  the  great 
steadiness  of  the  first.  Here  it  is,  —  $26,000,000  one 
year,  $17,000,000  the  next,  $20,000,000  the  next, 
$15,000,000  the  next,'  $13,000,000  the  next,  $23,- 
000,000  another,  $17,000,000  another.  Thus  it  was, 
up  and  down,  an  irregular  teeter.  Not  only  no 
steady  increase,  but  no  steady  diminution,  —  nothing 
steady  about  it.  In  reference  to  the  population,  the 
product  of  the  new  duties  never  rose  higher  than  the 
old  ratio  of  1808,  namely,  $2,500,000  to  1,000,000 
of  people,  but  sometimes  sunk  down  to  $750,000  to 
1,000,000  of  people.    Thus  do  facts  and  figures  show, 

1  Hildreth's  United  States. 


ON  AMERICAN  TARIFFS.  431 

independent  of  irrefragable  reasoning,  that  the  earlier 
system  was  the  wiser. 

'  But  while  I  praise  the  Hamilton  tariff,  in  compar- 
ison with  those  that  came  after  it,  I  do  not  forget 
its  defects.  It  borrowed  from  the  old  Navigation 
Act  of  England,  and  made  unwise  discriminations 
betw^een  foreign  bottoms  and  American  ships.  Du- 
ties were  10  per  cent,  higher  on  goods  imported  in 
foreign  ships.  Tonnage  was  6  cents  per  ton  on 
American  ships ;  30  cents  per  ton  on  ships  Ameri- 
can-built but  owned  by  foreigners ;  and  50  cents  per 
ton  on  all  others.  These  discriminations  have  long 
since  disappeared.  It  cannot  be  wise  to  put  obsta- 
cles in  the  way  of  foreigners  coming  to  our  ports  to 
trade.  Neither  do  sound  principles  approve  even  the 
moderate  margin  yielded  in  this  tariff  to  protection. 
The  duties  indeed  were  low,  —  they  were  scarcely  a 
burden  upon  industry,  —  but  neither  on  the  other 
hand  did  they  aid  it.  All  above  the  best  revenue 
figure  was  needless.  If,  with  the  great  advantage  of 
being  able  to  escape  the  costs  of  transportation, 
together  with  the  abundance  of  raw  material,  and 
the  endless  resources  of  agriculture,  any  branch  of 
industry  could  not  live  without  artificial  help,  then 
the  proof  is  complete  that  it  ought  not  to  have  been 
entered  upon,  and  could  not  have  been  prosecuted, 
except  at  a  permanent  loss. 

Our  second  tariff,  passed  in  1816,  I  shall  designate 
as  the  Calhoun  tariff.  Then  first  we  entered  upon 
the  protective  system  as  such  ;  and  it  is  a  curious 
instance  of  how  times  change  and  men  change  with 
them,  that  Mr.  Calhoun,  who  afterwards  became  the 
champion  of  Free  Trade,  strenuously  advocated  this 


482  ELEMENTS  OF  POLITICAL  ECONOMY. 

tariff,  while  Mr.  Webster  as  strenuously  opposed  it. 
Till  then  the  tariff  question  formed  no  element  in 
our  politics ;  if  I  may  say  so,  nobody  knew  that  we 
had  any  tariff  unless  he  chanced  to  read  the  statute- 
book  ;  and  it  was  an  evil  day  for  this  country  when 
a  purely  scientific  question  became  mixed  up  in 
passions  and  politics,  and  adhesion,  on  one  side  or 
the  other,  to  what  not  one  voter  in  a  thousand  ever 
begun  to  comprehend,  was  made  a  test  of  party. 
From  that  day  to  this,  no  tariff  question  has  ever 
been  decided  on  its  merits.  Interests,  sections, 
passions,  have  influenced  every  bill ;  and  it  is  a  part 
of  the  punishment,  I  believe,  for  prosecuting  an  arti- 
ficial and  false  system  in  any  department,  that  it  is 
hard  work  to  get  out  of  it.  New  England  generally 
opposed  the  Calhoun  tariff,  and  the  principle  of  pro- 
tection embodied  in  it;  so  did  a  majority  of  the 
Southern  members;  but  South  Carolina,  seeing  the 
growing  value  of  cotton,  and  anxious  for  a  home 
market  for  the  raw  material,  united  with  Pennsyl- 
vania and  the  Middle  States  in  securing  the  high 
duties,  especially  upon  cottons  and  iron.  The  duties 
were  increased,  on  an  average,  42  per  cent,  above 
the  old  rates  preceding  the  war.  Imported  articles 
were  divided  into  three  classes  :  1st,  Those  of  which 
a  full  domestic  supply  could  be  produced  ;  2d, 
Those  of  which  only  a  partial  domestic  supply  could 
be  afforded ;  and  3d,  Those  produced  at  home 
very  slightly,  or  not  at  all.  On  the  first  class,  the 
duties  were  fixed  substantially  at  35  per  cent,  ad 
valorem.  On  the  second  class,  including  cottons  and 
woollens,  the  duties  were  25  per  cent.,  to  be  reduced 
after  three  years  to  20  per  cent.     On  the  third  class 


ON  AMERICAN  TARIFFS.  433 

the  rates  were  mostly  fixed  with  a  view  to  revenue 
only. 

'  In  connection  with  the  tariff,  we  copied  again,  and 
more  largely,  from  the  English  Navigation  Act.  Im- 
portations by  foreign  ships  were  limited  to  the  prod- 
uce of  their  respective  countries  ;  and  the  coasting- 
trade,  hitherto  open  to  foreign  vessels,  was  now  re- 
stricted to  those  American  owned  and  built.  In  one 
word,  we  entered  fairly  and  squarely  upon  the  career 
of  restriction. 

Our  third  tariff,  that  of  1824,  we  may  call,  if  we 
please,  the  Clay  tariff.  That  gentleman,  though 
Speaker  of  the  House  at  the  time,  took  an  earnest 
part  in  the  debates,  and  was  regarded  as  the  most 
prominent  advocate  of  what  then  first  began  to  be 
called  the  "  American  System,"  that  is,  the  system 
of  high  protective  duties.  Mr.  Webster  still  opposed 
this  system,  made  an  elaborate  speech  in  reply  to 
Mr.  Clay,  and  voted  against  the  bill. 

The  bill  increased  the  duties  on  protected  articles 
very  considerably ;  and  is  an  excellent  proof  that 
interests  that  are  petted,  and  legislatively  protected, 
do  not  long  remain  satisfied  with  what  they  receive, 
but  are  soon  clamorous  for  more  protection.  The 
Calhoun  tariff  gave  these  interests  large  protection  ; 
eight  years  run  on,  and  they  call  for  more ;  they  get 
it.  Are  they  satisfied  ?  Why  should  they  be  ?  In- 
stead of  being  taught  to  rely  upon  themselves,  they 
have  been  taught  to  lean  upon  the  government.  Cer- 
tainly they  will  ask  for  more  still. 

'Four  years  after  the  Clay  tariff,  that  is  in  1828,  was 
passed  the  "  Tariff  of  Abominations,"  so  called,  in 
the   politics   of    the   time.     The    manufacturers   of 

23 


434  ELEMENTS   OF  POLITICAL  ECONOMY. 

course  had  asked  for  more  protection  ;  but  the  oppo- 
sition to  the  system  was  now  strong ;  it  could  not 
prevent  the  passage  of  the  bill,  but  it  loaded  it  down 
with  all  manner  of  objectionable  features,  to  make  it 
as  distasteful  as  possible  to  its  advocates.  A  political 
design  to  make  the  protective  system  unpopular 
appeared,  and  was  indeed  avowed ;  but  the  friends 
of  protection,  in  view  of  the  higher  duties  on  many 
articles,  came  to  the  conclusion  to  support  the  bill 
notwithstanding  its  odious  features.  They  swal- 
lowed the  whole  with  the  best  grace  they  could. 
Daniel  Webster,  after  strenuous  but  fruitless  efforts 
to  reduce  its  "  abominations,"  for  the  first  time  in  his 
life  voted  for  a  bill  involving  the  principle  of  high  pro- 
tective duties.  This  was  in  John  Quincy  Adamses 
administration. 

Four  years  later  Mr.  Clay  went  into  the  Presi- 
dential canvass  against  General  Jackson  upon  the 
avowed  platform  of  protective  duties."  He  was 
beaten.  The  country  seemed  to  indicate  its  prefer- 
ence for  another  system  ;  and  accordingly  in  18B3  our 
fifth  tariff,  called  the  "  Compromise  tariff,'*  became 
a  law.  It  adopted  a  sliding  scale  in  reference  to  all 
duties  that  were  over  20  per  cent.,  providing  for  their 
gradual  reduction  on  each  alternate  year,  till  1842, 
when  and  thereafter  the  uniform  rate  on  all  these 
goods  should  be  20  per  cent,  on  the  home  valuation. 
Mr.  Clay  himself  brought  forward  this  bill  as  a  "com- 
promise ; "  it  was  approved  by  Mr.  Calhoun,  and  it 
passed  both  Houses  by  decided  majorities. 

During  the  next  nine  years  the  attention  of  the 
country  was  occupied  by  the  great  questions  of  a 
National  Bank  and  the  currency.    On  these  and  other 


ON  AMERICAN  TARIFFS.  435 

questions  the  administration  of  Van  Buren  became 
unpopular  and  broke  down ;  and  the  Whig  party, 
coming  into  power,  passed  what  I  shall  call  the 
"  Whig  tariff"  of  1842.  It  w^as  a  high  protective 
tariff.  The  average  of  duties  was  perhaps  50  per 
cent,  instead  of  the  20  per  cent,  of  its  predecessor. 
Under  it,  millions  of  capital  were  seduced  into  manu- 
factures, particularly  of  iron ;  and  when  the  high 
duties  were  abolished,  as  they  were  a  few  years  later, 
hundreds  and  thousands  of  persons  were  pecuniarily 
ruined.  It  is  impossible  to  speak  in  terms  sufficiently 
deprecatory  of  an  artificial  system  that  inveigles 
capital  and  laborers  into  branches  of  industry  in 
w^hich  they  never  would  have  embarked  of  their  own 
accord.  Our  whole  course  of  legislation  on  this  sub- 
ject cannot  be  properly  characterized  in  terms  of 
respect.  Congress  has  alternately  inflated,  and  then 
punctured,  the  bubble.  Nothing  injures  commerce  so 
much  as  to  tinker  it.  A  constant  changing  of  the 
terms  on  w^hich  foreigners  are  permitted  to  trade  with 
us  disgusts  them  and  injures  us.  Even  a  bad  tariff 
persisted  in,  is  a  good  deal  better  than  a  series  of 
good  and  bad  ones  together. 

In  1846  was  passed  what  we  will  call  the  "  Walker 
tariff,"  from  Robert  J.  Walker,  then  Secretary  of  the 
Treasury.  It  reduced  the  duties  on  imports  down  to 
about  the  standard  of  the  "  Compromise  "  of  1833. 
It  discriminated  however,  as  the  Compromise  did  not, 
between  goods  that  could  be  produced  at  home  and 
those  that  could  not.  It  approached,  in  short,  more 
nearly  than  any  other,  in  its  principles  and  details,  to 
the  Hamilton  tariff,  although  the  general  rate  of 
duties  was  higher.    From  that  time  up  to  1857,  there 


436  ELEMENTS   OF  POLITICAL  ECONOMY. 

« 
was  a  regular  and  large  increase  in  the  amount  of 

dutiable  goods  imported,  bringing  in  a  larger  revenue 
to  the  government.  The  surplus  in  the  treasury 
accumulated,  and  large  sums  were  expended  by  the 
government  in  buying  up  its  own  bonds  at  a  high 
premium,  for  the  sake  of  emptying  the  treasury. 
Under  these  circumstances  the  "tariff  of  1857"  was 
passed,  decidedly  lowering  the  rates  of  duties,  and 
largely  increasing  the  free  list.  The  financial  crisis 
of  that  year  diminished  the  imports,  and  the  reve- 
nue fell  off'  $22,000,000.  It  rallied,  however,  the 
next  two  years,  but  owing  to  the  large  increase  in 
the  free  list,  not  quite  up  to  the  old  point. 

It  only  remains  to  speak  of  the  "  Morrill  tariff""  of 
1861.  It  is  the  ninth  in  order,  and  our  present  tariff". 
The  difficulties  growing  out  of  the  war  ostensibly 
united  all  parties  in  the  view  of  obtaining,  if  possible, 
more  revenue  to  the  government ;  but  there  was  no 
agreement  as  to  the  means  by  which  more  revenue 
could  be  obtained  ;  and  the  protectionists  in  Congress 
seized  the  opportunity  of  the  withdrawment  of  the 
Southern  members  for  discriminating  in  favor  of  the 
articles  in  which  they  were  interested,  even  to  the 
extent  of  diminishing  the  revenue  by  practically  pro- 
hibiting the  importation.  They  did  another  thing 
which  imposed  at  the  time  on  many  people,  and 
which  can  hardly  be  characterized  in  too  severe  terms. 
At  the  moment  when  the  great  need  of  the  govern- 
ment was  revenue,  they  added  largely  to  the  free  list, 
taking  care  to  put  upon  it  many  articles  w^hich  are 
used  in  manufactures,  and  which  thus  escape  taxation 
altogether.  They  put  the  duty  on  protected  articles 
so  high  that  little  or  no  revenue  is  received  on  them, 


ON  AIMERICAN  TARIFFS.  437 

and  at  the  same  time  withdrew,  by  means  of  the  free 
list,  all  revenue  from  many  articles  especially  used  in 
protected  manufactures.  The  new  tariff  therefore 
has  not  produced  the  revenue  expected  from  it.  It 
is  not  honestly  adjusted  for  that  purpose.  To  put 
articles  on  a  free  list  is  no  boon  to  free  trade ;  espe- 
cially when  it  is  accompanied,  as  in  this  case,  by  very 
high  duties.  The  present  duties  are  very  much  too 
high,  and  many  things  are  exempted  from  duty 
which  ought  to  pay  duty  for  the  sake  of  revenue. 
The  present  tariff  therefore  rests  on  false  principles 
throughout,  and  it  cannot  be  permanent.  They  who 
feel  themselves  benefited  by  it  may  as  well  make  up 
their  minds  to  dispense  with  it.  The  Western  States 
will  not  tolerate  it.  Political  Economy  denounces  it. 
To  relax  commercial  systems  and  not  to  restrict  them 
is  alone  in  accordance  with  the  spirit  of  this  age. 
The  state  of  the  country  demands  its  abolition.  The 
claims  of  the  public  debt  require  a  larger  revenue 
from  customs.  $86,000,000  were  received  in  the 
year  closing  on  the  1st  of  July,  1865.  We  may  well 
receive  $125,000,000  from  a  tariff  which  is  framed  in 
accordance  with  the  true  principles  of  exchange.  In 
1861  the  ratio  of  free  goods  imported  to  dutiable 
goods  was  as  33  to  100,  $71,130,351  free  and  $218,- 
180,191  dutiable ;  and  in  1862,  the  ratio  was  as  40 
to  10b,  $52,721,648  free  and  $136,683,123  dutiable; 
instead  of  this  there  should  be  a  low  revenue  duty 
upon  the  entire  imports ;  and  this  would  doubtless 
have  doubled  or  trebled  the  revenue  of  those  years. 
The  idea  of  protection  and  the  idea  of  taxation  are 
very  distinct  ideas ;  and  a  recommendation  to  aban- 
don the  one  by  no  means  carries  along  with  it  a 
recommendation  to  abandon  the  other. 


438  ELEMENTS  OF  POLITICAL  ECONOMY. 


CHAPTER  XVL 

ON  TAXATION. 

If  the  general  views  maintained  throughout  this 
book  are  conceded  to  be  correct,  we  shall  now  reach 
with  very  little  difficulty  the  true  principles  of  taxa- 
tion. Value  resides  in  services  exchanged;  and  since 
government  is  an  essential  prerequisite  to  any  general 
and  satisfactory  exchanges,  since  it  contributes  by 
direct  effort  to  the  security  of  person  and  property, 
it  justly  claims  from  every  citizen  in  return  a  com- 
pensation for  the  service  thus  rendered  to  him.  I 
do  not  mean  to  say  that  government  exists  solely  for 
the  protection  of  person  and  property,  or  that  all  the 
operations  of  government  are  to  be  brought  down 
within  the  sphere  of  exchange ;  government  exists 
as  well  for  the  improvement  as  for  the  protection  of 
society,  and  many  of  its  high  functions  are  moral,  to 
be  performed  under  a  lofty  sense  of  responsibility  to 
God  and  to  future  ages;  but  the  matter  of  taxation, 
by  which  government  is  outwardly  supported,  and 
by  which  it  takes  to  itself  a  part  of  the  gains  of  every 
man^s  industry,  seems  to  me  to  find  a  ready  and 
solid  justification  in  the  common  principles  of  ex- 
change. A  tax  paid  is  a  reward  for  a  service  ren- 
dered; and  because  the  service  may  have  respected 
another  generation  as  well  as  the  present,  it  is  some- 


ON  TAXATION.  439 

times  proper  that  the  tax  also  shall  be  passed  over 
in  part  to  another  generation  to  pay.  The  services 
which  government  renders  to  production  by  its  laws, 
courts,  and  officers,  by  the  force  which  it  is  at  all 
times  ready  to  exert  in  behalf  of  any  citizen  or  the 
whole  society  when  threatened  with  evil,  are  rendered 
somewhat  on  the  principle  of  division  of  labor,  one 
set  of  agents  devoting  themselves  to  that  work  ;  and, 
notwithstanding  some  crying  abuses  of  authority 
which  no  constitution  or  public  virtue  have  yet  been 
found  adequate  wholly  to  avert,  are  rendered  on  the 
whole  economically  and  satisfactorily.  Taxes,  there- 
fore, demanded  of  citizens  by  a  lawful  government 
which  tolerably  performs  its  functions,  are  legitimate 
and  just  on  principles  of  exchange  alone. 

The  questions  now  arise,  in  what  proportions  shall 
the  citizens  contribute  to  the  fund  necessary  to  be 
raised  by  taxation  ?  And  in  what  manner  shall  these 
contributions  be  paid  ? 

The  common  notion  has  been  that,  since  every 
man's  person  is  supposed  to  be  equally  protected  by 
the  government,  a  uniform  poll-tax  assessed  on  all 
citizens  alike  is  right,  and  that  for  the  rest,  a  man 
should  be  taxed  according  to  his  property.  But  what 
is  property  ?  No  word  has  received  a  greater  variety 
of  definitions,  or  is  less  settled  in  definite  meaning 
in  the  minds  of  men.  The  lawyers  make  a  distinc- 
tion between  real  property  and  personal  property; 
and  the  law  at  present,  though  a  man  have  neither 
real  estate  nor  movables,  yet  taxes  him  on  his  income, 
on  the  rewards  of  his  daily  industry,  regarding  that 
as  a  species  of  property.  And  this  too  is  just;  be- 
cause, as  I  think,  the  ultimate  idea  of  property  is  the 


440  ELEMENTS  OF  POLITICAL  ECONOMY. 

power  and  right  to  render  services  in  exchange. 
Robinson  Crusoe,  while  solitary  upon  his  island,  did 
not  and  could  not  have  property,  in  the  true  sense 
of  that  word.  It  is  not  the  fact  of  appropriation  that 
makes  anything  property  ;  it  is  not  the  fact  that  a 
man  has  made  it  or  transformed  it,  that  makes  any- 
thing property ;  it  is  not  the  fact  that  a  man  may 
rightfully  give  it  away,  that  makes  anything  prop- 
erty; but  it  is  the  fact  that  a  man  has  something,  no 
matter  what  it  is,  for  which  something  else  may  be 
obtained  in  exchange,  that  makes  that  something 
property,  and  gives  government  the  right  to  tax  it. 
In  other  words,  property  consists  in  values,  in  a  pur- 
chasing-power, and  not  in  possession,  or  in  appropri- 
ation, or  in  the  esteem  in  which  a  man  holds  any- 
thing he  has  as  long  as  it  is  his  own.  The  test  of 
property  is  a  sale ;  that  which  will  bring  something 
when  exposed  for  exchange  is  property  ;  that  which 
will  bring  nothing,  either  never  was,  or  has  now 
ceased  to  be,  distinctively  property.  This  view  may 
not  seem  to  be  as  novel  as  it  is,  or  it  may  be  preju- 
diced by  its  very  novelty,  but  at  any  rate  it  carries 
along  with  it  that  strongest  of  the  criteria  of  truth, 
that  it  simplifies  and  illumines  a  confused  section  of 
the  field  of  human  thinking ;  and  at  the  same  time 
justifies  a  practice  which  governments  have  reached, 
as  it  were  through  instinct,  but  which  is  continually 
a  subject  of  cavil  and  complaint,  the  practice,  name- 
ly, of  taxing  men  who  have  neither  real  estate  nor 
chattels,  on  their  incomes  from  industry.  Within  a 
month  an  intelligent  man  was  heard  to  inveigh 
against  the  injustice  of  the  law  which  taxes  the  in- 
dustrious man  who  works  and  gains  an  income,  but 


ON  TAXATION.  441 

takes  little  or  nothing  from  the  man  unable  or  too 
lazy  to  work.  Nevertheless  the  law  is  right  in  its 
action,  and  my  neighbor  was  wrong  in  his  strictures. 

To  the  general  question,  then,  in  what  proportions 
shall  the  citizens  contribute  in  taxes  to  the  support 
of  government,  the  general  answer  comes,  that  they 
ought  to  contribute  in  accordance  with  the  value  of 
the  services  which  they  either  do  or  might  render  to 
their  fellow-citizens.  Under  the  expression  "  might 
render"  is  not  included  any  personal  services  not 
actually  rendered,  but  only  those  forms  of  material 
property  which  might  be  exchanged  for  other  forms 
if  the  owner  saw  fit  to  exchange  them,  but  which  he 
prefers  for  the  present  to  keep  in  his  own  possession. 
It  would  not  be  fair,  for  example,  to  tax  a  profes- 
sional man  on  services  which  his  neighbors,  or  any 
other  authority,  think  he  might  render,  were  he  less 
indolent  or  more  capable  ;  but  it  is  fair  to  tax  any 
man  on  those  forms  of  material  property  in  his  pos- 
session with  which  he  may  at  any  time  he  chooses 
render  services  in  exchange.  The  right  to  tax  on  the 
part  of  the  government  is  connected  with  the  right  to 
exchange  on  the  part  of  the  citizens,  grows  out  of 
this,  and  is  limited  by  it.  This  consideration,  though 
it  may  exclude  the  propriety  of  a  poll-tax,  is  consist- 
ent with  all  other  forms  of  taxation,  and  gives  unity 
to  them. 

I  do  not  think  that  the  common  sense  of  mankind 
falls  in  with  the  opinion  ably  advocated  by  Mr.  Mill 
and  others,  that  persons  of  a  large  property  or  of  a 
large  income  should  pay  taxes  higher  than  the  due 
proportion  of  their  properties  or  incomes  to  more 
moderate   properties   or  incomes.     The   transaction 


442  ELEMENTS  OF  POLITICAL  ECONOMY. 

between  the  government  and  a  tax-payer  is  itself  a 
kind  of  exchange,  and  if  the  ground  of  it  be,  as  I 
think  it  is,  that  government  facilitates  by  way  of  pro- 
tection all  his  other  exchanges,  then  ought  he  to  pay 
taxes  proportionably  to  the  amount  of  his  exchanges 
actual  or  possible;  and  a  man  should  pay  on  an 
income  of  $10,000  ten  times  as  much,  and  no  more, 
as  a  man  with  an  income  of  $1000.  Mr.  Mill  re- 
gards equality  of  burden  as  the  true  general  princi- 
ple of  taxation  j  and  as  a  rich  man  can  pay  more 
than  his  proportional  share  with  perhaps  less  sacrifice 
than  the  poor  man,  therefore  he  ought  to  pay  more 
than  his  proportional  share.  This  principle  is  em- 
bodied in  the  present  United  States  law  by  which 
incomes  are  taxed ;  incomes  over  $600  and  less 
than  $5000  being  subject  to  5  per  cent,  tax,  and  the 
surplus  income  over  $5000  being  subject  to  a  10 
per  cent.  tax.  It  may  well  be  questioned  whether 
the  principle  itself,  and  consequently  this  application 
of  it,  be  soundly  based.  Certainly  taxes  ought  to 
be  laid  on  equal  and  equitable  principles,  but  the 
difficulty  of  determining  for  different  classes  of  citi- 
zens what  would  be  an  equality  of  burden  is  so 
insuperably  great,  that  one  hesitates  before  accepting 
it  as  the  true  principle  of  taxation.  On  the  whole, 
I  am  clear  that  the  best  available  guide  in  practical 
taxation  are  these  simple  principles,  that  property  is 
essentially  a  power  to  render  services,  and  that  tax- 
ation should  be  as  nearly  as  possible  proportionate 
to  the  degree  of  this  power. 

If,  then,  taxes  are  to  be  laid  on  services,  thus  sub- 
tracting a  portion  from  the  gains  which  accompany 
them,  the  question  now  arises  in  what  way  are  they 


ON  TAXATION.  443 

to  be  laid  ?  They  are  commonly  divided  into  two 
classes,  direct  and  indirect.  A  direct  tax  is  levied 
on  the  very  persons  who  are  expected  themselves  to 
pay  it ;  an  indirect  tax  is  demanded  from  one  person 
in  the  expectation  that  he  will  pay  it  provisionally, 
but  will  indemnify  himself  in  the  higher  price  which 
he  will  receive  from  the  ultimate  consumer.  Thus 
an  income  tax  is  direct,  while  duties  laid  on  imported 
goods  are  indirect.  There  has  been  a  great  amount 
of  discussion  on  the  point  whether  direct  or  indirect 
taxation  be  the  more  eligible  form ;  but  the  reader 
of  penetration  will  perceive  that  there  is  not  at  bot- 
tom any  very  radical  difference  between  them  ;  each 
is  alike  a  tax  on  actual  or  possible  exchanges,  with 
this  main  difference,  that  men  pay  indirect  taxes  as 
a  part  of  the  price  of  the  goods  they  buy,  without 
thinking  perhaps  that  it  is  a  tax  they  are  paying,  and 
consequently  without  any  of  the  repugnance  that  is 
sometimes  felt  towards  a  tax-gatherer  who  comes 
with  an  unwelcome  demand.  Thus  indirect  taxes 
are  conveniently  and  economically  collected.  Espe- 
cially is  this  true  of  impost  duties ;  since  one  set  of 
custom-house  officers  collect  easily  and  at  once  the 
government  tax  which  is  ultimately  paid  by  con- 
sumers all  over  the  country.  The  manufacturers' 
tax,  the  tax  on  keeping  horses  and  carriages  to  let, 
and  very  many  others  levied  by  the  present  United 
States  internal  revenue  law,  are  indirect  taxes,  where- 
by the  government  gets  in  a  lump  what  is  afterwards 
distributed  over  many  subordinate  exchanges.  The 
countervailing  disadvantage  of  indirect  taxation,  how- 
ever, is,  that  the  price  of  the  commodity  is  usually 
enhanced  to  an  extent  much  beyond  the  amount  of 


444  ELEMENTS  OF  POLITICAL  ECONOMY. 

the  tax,  partly  because  it  is  a  cover  under  which 
dealers  may  put  an  unreasonable  demand,  and  partly 
because  the  tax,  having  to  be  advanced  over  and 
over  again  by  the  intermediate  dealers,  profits  rapidly 
accumulate  as  an  element  of  the  price. 

Direct  taxes  are  laid  either  on  income  or  expendi- 
ture. An  income  tax,  if  the  exact  amount  of  income 
could  in  all  cases  be  ascertained,  would  be  a  perfectly 
unexceptionable  form  of  taxation.  The  only  sources 
of  income  are  three  :  wages,  profits,  rents.  I  do  not 
think  that  gifts  are  legitimately  taxable ;  they  lie  out- 
side the  field  of  exchange ;  they  spring  from  sympa- 
thy, from  benevolence,  from  duty  ;  and  while  ex- 
change must  claim  all  that  fairly  belongs  to  it,  it 
must  be  careful  not  to  throw  discouragements  into 
the  adjacent  but  distinct  field  of  morals.  Hence,  it 
may  well  be  questioned  whether  legacies,  bequeath- 
ments,  gifts  to  charitable  and  educational  institu- 
tions, and  gifts  to  individuals  proceeding  from  friend- 
ship, gratitude,  or  other  such  impulse,  are  properly 
subject  to  taxation.  The  property  is  taxable  in  the 
hands  of  the  donor,  and  may  be  in  the  hands  of  the 
recipient,  but  the  passage  from  one  to  the  other  ought 
to  be  unobstructed  by  a  tax.  Gifts  then  excepted, 
and  plunder,  which  is  out  of  the  question,  the  sources 
of  income  are  few  and  simple,  and  there  is  no  great 
difficulty  in  every  man's  ascertaining  about  what  his 
annual  income  is.  Fraudulent  returns  should  be 
promptly  punished  by  an  additional  assessment  and 
collection.  The  income  law  at  present  in  force  in 
the  United  States  has  perhaps  been  subject  to  less 
complaint  than  the  manufacturers'  tax,  and  other 
forms  of  indirect  taxation  ;  and  it  is  becoming  more 


ON  TAXATION.  445 

and  more  productive  every  year,  as  the  forms  are  per- 
fected, and  as  the  memory  and  conscience  of  the  pay- 
ers are  quickened  by  the  action  of  a  healthful  public 
opinion  brought  to  bear  through  the  very  proper 
annual  publication  of  the  list  of  their  returns. 

The  other  direct  taxes  are  on  expenditure  of  some 
special  kinds,  such  as  those  on  horses,  carriages, 
watches,  plate,  and  so  on,  kept  for  personal  use.  As 
the  difficulty  of  a  tax  on  a  person's  whole  expenditure 
is  much  greater  than  one  on  his  whole  income,  inas- 
much as  the  items  are  more  numerous  and  more 
diffused,  it  is  only  attempted  to  lay  a  few  taxes  on 
some  peculiar  items  of  expenditure,  such  as  those 
above  mentioned ;  but  as  these  do  not  reach  all  per- 
sons with  any  degree  of  equality,  they  are  so  far 
forth  objectionable.  A  house  -  tax,  levied  on  the 
occupier,  and  not  on  the  owner  unless  he  be  at  the 
same  time  the  occupier,  would  be  a  direct  tax  on 
expenditure  every  way  unobjectionable.^  Taking 
society  at  large,  the  house  a  man  lives  in  and  its 
furniture  are  probably  the  most  accurate  index  attain- 
able of  the  size  of  his  general  expenditures.  They 
are  open  to  observation  and  current  remark  ;  they  are 
that  on  which  persons  rely  more  perhaps  than  on 
anything  else  external  for  their  consideration  and 
station  in  life  ;  the  tax  could  be  assessed  with  very 
little  trouble  on  the  part  of  the  assessor ;  and  it  is 
well  worthy  the  attention  of  our  national  legislature, 
whether  such  a  tax,  if  more  taxes  should  be  needed, 
would  not  be  more  equal  and  more  easy  of  collection 
than  any  others  now  open  ;  or  whether  it  might  not 
with  advantage  take  the  place  of  some  of  the  com- 
iMill,  Chap.  III.,  Book5. 


446  ELEMENTS  OF  POLITICAL  ECONOMY. 

plicated  and  objectionable  taxes  now  laid.  Direct 
taxes  have  this  general  advantage  over  indirect,  that 
they  bring  the  people  into  more  immediate  contact 
with  the  government  that  lays  the  taxes,  and  subject 
it  to  a  quicker  supervision  and  more  effectual  curb, 
whenever  its  expenditures  grow  larger  than  the  peo- 
ple think  it  desirable  to  incur;  they  have  this  general 
disadvantage  over  indirect  taxes,  especially  over  im- 
posts, that  the  number  of  officials  required  to  assess 
and  collect  them  is  much  larger,  thus  swallowing  up 
a  part  of  the  proceeds  of  the  taxes,  with  this  liabil- 
ity also  of  bringing  the  people  into  an  attitude  of 
hostility  to  the  government  and  to  its  contemplated 
expenditures.  But  whether  the  taxes  be  direct  or 
indirect,  or  whatever  be  their  form,  except  it  be  a  poll- 
tax,  which  is  questionable  at  best,  they  are  laid  upon 
exchanges,  and  are  designed  to  withdraw  for  the  use 
of  the  government  a  part  of  the  gains  of  exchanges. 
From  this  point  of  view,  which  gives  unity  to  the 
whole  field  of  taxation,  some  practical  hints  may 
usefully  conclude  this  discussion  and  this  volume. 

(1.)  Taxes  in  general,  in  order  to  be  most  pro- 
ductive in  the  long  run,  as  well  as  discourage  as  little 
as  possible  the  exchanges  which  would  otherwise  go 
forward,  ought  to  be  low  relatively  to  the  amount  of 
values  exchangeable.  A  high  tax  not  infrequently 
stops  exchanges  in  the  taxed  articles  altogether,  and 
of  course  the  tax  then  realizes  nothing  to  the  govern- 
ment. As  the  only  motive  to  an  exchange  is  the 
gain  of  it,  the  exchange  ceases  whenever  the  govern- 
ment cuts  so  deeply  into  the  gain  as  to  leave  little 
margin  to  the  exchangers.  The  greater  the  gain  left 
to  the  parties,  after  the  tax  is  abstracted,  the  more 


ON  TAXATION.  447 

numerous  will  the  exchanges  become,  and  the  greater 
the  nnmber  of  times  will  the  tax  fall  into  the  coffers 
of  the  government.  In  almost  all  articles,  consump- 
tion increases  from  a  lowered  price  in  even  a  greater 
ratio  than  the  diminution  of  the  rate  of  tax  ;  so  that 
the  interests  of  consumers  arid  of  the  revenue  are 
not  antagonistic  but  harmonious.  Particularly  is 
this  true  of  duties  on  imported  goods  :  I  do  not  know 
as  there  is  anything  imported,  except  what  the  gov- 
ernment itself  imports,  which  should  not  pay  a 
small  duty.  It  is  a  tax  oa  exchange,  like  all  other 
taxes;  why  should  it  not  be  paid  on  everything?  A 
free  list  in  imports  is  of  doubtful  utility  at  best,  and 
may  become,  as  the  Morrill  tariff  demonstrates,  little 
better  than  a  swindle.  On  articles  of  luxury  and 
ostentation,  and  on  those,  such  as  liquors  and  to- 
baccos, whose  moral  effects  are  clearly  questionable, 
very  high  taxes  may  properly  enough  be  laid,  because 
their  incidence  will  hardly  tend  to  diminish  consump- 
tion, and  it  would  scarcely  be  to  be  regretted  if  it 
did  ;  but  with  this  exception,  duties  and  taxes  should 
be  levied  at  a  low  rate  per  cent.,  as  well  for  the  in- 
terest of  revenue  as  of  consumers. 

(2.)  Duties  and  taxes  should  be  simple,  and  their 
amount  easily  calculable  by  the  payer  beforehand. 
The  complication  of  specific  duties  with  ad  valorem 
duties  upon  the  same  articles  is  a  decided  objection 
to  the  present  tariff.  So  far  as  is  possible,  taxes 
should  be  levied  upon  commodities  once  for  all,  and 
then  an  end.  The  opposite  principle  of  taxing  com- 
modities every  time  they  change  hands  throws  an 
indefinite  burden  on  exchange,  whose  weight  cannot 
well  be  calculated  beforehand,  either  by  the  consumer 


448  ELEMENTS  OF  POLITICAL  ECONOMY. 

or  by  the  government,  through  uncertainty  as  to  the 
number  of  transfers.  Exchanges  indeed  are  the  only 
legitimate  subject  of  taxation,  but  not  every  specific 
and  subordinate  exchange.  An  attempt  to  tax  all 
sales  whatever  was  followed  in  Spain,  and  will  be 
followed  everywhere,  by  a  sluggish  indisposition  to 
trade  at  all.  Let  the  amount  of  the  tax  be  definite,  and 
let  everybody  be  sure  that  when  it  is  once  paid  gov- 
ernment will  produce  'no  further  claim,  and  industry 
will  go  along  under  heavy  taxes  better  than  under 
those  nominally  lighter  to  which  uncertainty  as  to 
time  or  amount  attaches.  All  the  more  advanced 
governments  have  been  simplifying  of  late  years 
their  systems  of  taxation,  and  collecting  their  revenue 
at  fewer  points,  and  under  more  tangible  conditions, 
in  order  to  interfere  as  little  as  possible  with  a  free 
industry  and  free  exchange.  England,  for  instance, 
has  given  up  a  great  variety  of  taxes  which  she  used 
to  impose,  and  now  collects  her  revenue  about  as 
follows  :  — 

Customs,  35  per  cent.  Stamps,  10  per  cent. 

Excise,  25  per  cent.  Miscellaneous,  1 0  per  cent. 

Taxes,  20  per  cent. 

(3.)  Taxes  and  duties  should  be  collected  by  the 
government  in  as  economical  a  manner  as  possible, 
that  is  to  say,  the  money  should  be  kept  out  of  the 
pockets  of  the  people  as  short  a  time  as  possible, 
disbursement  following  quick  upon  collection.  It  is 
poor  policy  to  gather  taxes  at  the  beginning  of  the 
year  which  will  not  be  disbursed  till  the  end  of  the 
year.  Let  the  people  use  their  funds  till  they  are 
wanted  at  the  treasury ;  and  if  the  taxes  do  not  then 
come  in  as  fast  as  wanted,  it  is  better  to  issue  what 


ON   TAXATION.  449 

are  called  in  England  exchequer-bills,  and  in  the 
United  States  certificates  of  indebtedness,  to  be  re- 
deemed at  the  end  of  the  year  from  the  proceeds  of 
the  taxes,  than  to  let  the  people's  money  lie  idle  in 
the  treasury. 

(4.)  If  the  necessities  of  the  State  require  it,  gov- 
ernment has  the  right  to  demand  from  all  persons 
who  are  capable  of  making  exchanges,  and  who  do 
make  them,  something  in  the  form  of  taxes.  But  it 
is  every  way  better,  when  possible,  that  people  of 
very  moderate  means  should  be  exempted  altogether 
from  direct  taxes  ;  and  the  payment  of  indirect  taxes 
is  a  matter  wholly  in  their  own  option,  since  they  are 
at  liberty  to  buy  much  or  little  of  those  commodities 
subjected  to  an  indirect  tax.  In  this  country  at  pres- 
ent, incomes  not  exceeding  $600  are  exempted  by 
the  law.  If  a  house-tax  should  be  levied,  all  houses 
below  a  certain  grade  of  style  and  comfort  should  be 
exempted,  and  the  tax  pass  up  by  easy  gradations 
from  those  just  taxed  to  the  palatial  residences  of 
the  rich.  In  the  present  age  of  the  world,  the  well-to- 
do  citizens  of  every  country  are  able  to  bear  without 
too  great  difficulty  the  burdens  of  the  government ; 
and  nothing  tests  better  the  degree  of  civilization 
which  a  nation  has  reached  than  the  care  and  solici- 
tude it  displays  for  the  welfare  of  its  poorer  citizens. 


THE    END. 


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